from Follow the Money

Chinese reserve growth continues at a $20b a month rate -

March 28, 2006

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China just released (or leaked) its latest reserve numbers.  With $854 billion in reserves, China's reserves now top Japan's reserves.   No wonder Brazil wants China to invest in its Treasury market ... and pick up a bit of yield in the process.  

China's defenders will say that per capita reserves are still not that high.  But again per capita anything in China isn't that high.  Nothing like dividing by 1.3 billion.

More importantly the data suggests China's reserves are continuing to grow by about $20b a month. 

Reserves went up by $26.3b in January, and another $8.5b in February, even with a short February because of the Chinese new year.

Valuation changes matter for interpreting the monthly data.   If China had $200b in euros (euro 169.5 b) at the end of 2005, those euros would have been worth $205.4b in 2004, and only $201.3b in 2005.   

Roughly adjusted for valuation, the underlying pace of reserve growth was $20.9b in January, and $12.6b in February.   With a trade surplus of $9.6b in January and 2.45b in February, that suggests net capital inflows of over $10b in both January and February.   Say $5b in FDI and $5b in "hot money."  More or less the recent trend.

Taking into account seasonal variation, that suggests nothing much has changed - China's monthly reserve accumulation continues at a $20b monthly/ $250b annual rate.

The absence of stronger reserve growth in January surprised me a bit.   Capital inflows to the rest of Asia picked up big time in January (as did reserve accumulation), so I expected a pick up in inflows to China.   Apparently that didn't happen.  I am a bit suspicious though - I wonder if China did something to lower its January reserves.   To be clear though, I do not have anything to back that suspicion.

China's reserve data allows leads me to believe that emerging market reserves grew by at least $60b in January, even after adjusting for valuation and taking into account Argentina's $10b repayment to the IMF - a $720b annual pace.  Reserve growth did fall in February -- capital flows to the rest of Asia -- or at least central bank intevention in the rest of Asia -- tailed off.  But it remains reasonably strong.   

One important note:  the reserves of oil exporters continue to soar.   They reached $204.1b on March 17, up $21.9b.   Saudi foreign assets are up by about $10b through the end of February - and, as in China, the February increase seems to be low for seasonal reasons.   

In q1, the combined increase in the reserves of China, Russia and Saudi Arabia alone will likely top $100b - and global reserve growth will almost certainly top $150b, perhaps by a lot.  All the talk about China right now may well lead to increase in hot money flows.  The Saudis made a lot of money in March.  And there are a few other countries that export oil as well.

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