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A $278 Billion (Up To $400 Billion) Differential Between China FX Reserves And UST Holdings In Past Year
To further illustrate the point presented in the previous article discussing the variance between the increase in Chinese FX Reserves and UST Holdings, we demonstrate the cumulative differential between October 2008 and September 2009 in these two series. During the time, China's FX reserves have grown by $392 billion, while its UTS holdings have increased by $115 billion: a $278 billion differential. Furthermore, estimates call for the December 31 FX number to grow to $2.4 trillion, which would be a $520 billion increase, while according to TIC we know that October Chinese bond holdings were the same as September. Whether these surged in November and December should be sufficient to determine if there is any validity to the Direct Bidder hypothesis presented earlier.
Regardless, if there is no marked increase in UST holdings in the last two months of the year, the FX-UST differential will hit $400 billion. The question then becomes - where did this extra money go? And why? And, most relevantly, why did it not go into Treasuries (at least according to TIC data).
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I heard that they bought a years supply of copper, for one thing.
Why is this such a surprise? Hasn't China been making waves over the last year about diversifying its portfolio? Someone big is obviously putting a floor under gold, and there are plenty of other commodoties to stockpile as well.
EDIT: Another piece of the puzzle is that China might be soaking up a lot of IMF SDRs...
They don't keep everything in USD, do they? The increase in FX reserves was probably converted into a basket of currencies with USD maybe 50% of the total. Can't that explain the difference?
It's worse than that. We know China has been a net seller of Agencies as it has been unable to get its head around the de facto if not de jure guarantee of Agency liabilities by the UST. One would expect the number of treasuries as a % of the FX reserve holdings to go UP assuming the Chinese intend to trade one "risk-free" dollar-denominated asset for another. Where are those dollars going? Some options:
1) We know they have increased their commitments to CIC which have subsequently flowed through to mostly commodity equity plays this year.
2) My sense is an increasing amount of direct foreign lending is being done through the FX reserves (loans to Africa, Russia, etc.)
3) Hopefully someone has the numbers on the above but my sense is that we still come up short -- there are dollars unaccounted for. I leave it to ZH to speculate as to where CB asset-gravity leads to in today's market.
They will come back. They always do.
China is buying miners for rare Earth metals, gold, silver, copper, oil sands, etc. at a stunning rate. Basically, China buys things of value or companies that mine/produce it, meanwhile USA and UK bails out banks.
BTW, China owns about 95% of all the Rare Earth metals in the world, is the #1 buyer of automobiles and #1 producer and consumer of gold now.
USA produces... debt.
BANK RUN BITCHES!!!
They buy Euro to diversify the FX reserve too.
What is your source for China's foreign reserves?
China does not report reserves to IMF, so what numbers are you using?
https://www.imf.org/external/np/sta/ir/topic.htm
Delta trade balance does not equal delta official reserves account.
I like ZH, but some of the analytical work gets sketchy.
Bloomberg.
Perhaps it wishes - God forbid - not to lend every goddamn cent it earns to Uncle Sam (so it can pass on the money to banksters) and keep some dollars on hand for it's own use such as purchasing commodities and other imports, no? Not that far fetched, is it?
You are of course considering the large number of currency swaps set up by China in the past year to facilitate non-US related transactions?
Hrmmm, maybe you aren't.
A better question would be why the CNY/USD has not budged a dime
http://www.x-rates.com/d/CNY/USD/graph120.html
If trade surplus Dollars are not recycled back into US T's, then the peg will naturally break. Unless of course this is being offset by equivalent purchases in nominal amounts of whatever they feel like....as long as it's payed for in USD's.
Hey Tyler, can you give me the link from Bloomberg to get China official reserves...?
I've been trying to sort this out.
China accumulates Treasuries in the official account (primarily) when it purchases dollars from Chinese exporters-this is the peg.
So if you're right there could be a couple of explanations:
1. They don't have to buy as many dollars to support their peg (prevent Rmb appreciation), and private holders retain the dollars (unlikely).
2. They are exchanging dollars for other currencies or assets.
or
3. The numbers are wrong.
China obfuscates their data, so I would bet on 3 as at least part of the answer.
But this situation must be the subject of constant analysis, because there is a strong possibility of problems in China.
Some say the boom will go on and there will be no "hard landing"...
however, it would be the first time in international macroeconomic history that a boom was not followed by a hard landing.
This is what we should ultimately tell China.
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But first we'd better cut government spending and start to make shit here at home.
here is who is buying USTs, just as I said, straight from the Argentina playbook.
For those of you who study history, you know what is next - your retirement accounts will be seized and used to buy USTs. It is inevitable at this point.
http://research.stlouisfed.org/fred2/series/USGSEC
Why do you all want U.S. to collapse and China to 'win'? Be careful what you wish for...