from Follow the Money

Not quite a trillion

October 13, 2006

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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China comes close, but doesn’t quite get the cigar.    $987.9b is not $1,0000b.

But China should hit a trillion in October.   China's monthly trade surplus has topped $15b for the last two months.   And falling oil prices could push China's surplus up even more.  Watch for a series of stories to hit the wires, following up on Richard McGregor’s excellent FT piece.

Best I can tell, China tried really, really hard to avoid hitting a trillion in September. 

China’s q3 trade surplus was around $50b ($49.3b by my measures).  Its reserve went up by about the same amount.  China’s reserves went up by $46.8.  The dollar rose a bit v. the euro though, cutting into the dollar value of China’s existing euro reserves.  So, on valuation adjusted basis, China’s q3 reserve increase was about $51b.

Which means net capital inflows into China mysteriously disappeared in q3. 


FDI inflows have been stable at about $5b a month for a long time, pushing reserve growth above the trade surplus.   And the current account surplus has been larger than the trade surplus.  So something had to change to bring reserve growth in line with the trade surplus.  Either FDI inflows stopped.  Or hot money started flowing out of China.  Or China’s authorities took steps to assure that various state companies would accumulate a few foreign assets so the PBoC wouldn’t need to do so.     

Why might hot money have flowed out?  Well, various folks betting on RMB appreciation might have given up.   But I find that argument somewhat implausible.  Why give up just when China started to let the RMB move in September.  

I personally would bet China did something to hold its reserve growth down just enough.  But I am a suspicious man.  Maybe they figured they should hold off reporting $1 trillion in reserves until after the US election.  But that may overstate the impact of the US on China.  They probably had a more compelling internal reason.  I just don't know what it was.

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