China's $3 Trillion In Reserves Questioned After PBOC Reports $41 BIllion In December Outflows

Tyler Durden's picture

In late December, ignoring the official Chinese monthly reserve data and instead using a dataset provided by China's FX regulator SAFE on cross-border RMB flows and on onshore FX settlements, Goldman calculated the true amount of Chinese FX outflows and found that Beijing has continued to mask the full extent of its capital flight, which in November spiked to $69 billion (well above the reported, currency adjusted number of $34 billion). Furthermore, it found that "since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data."

Even more troubling, Goldman calculated that cumulatively since August 2015 through November 2016, FX outflow totaled roughly US$1.1 trillion, while implied FX sales suggested by PBOC’s FX position (headline reserves after adjusted for currency valuation effect) were approximately US$630bn (US$540bn), indicating that the real rate of reserve depletion was nearly double that represented by PBOC reserve data.

Exhibit 1: FX outflow picked up to US$69bn in November

Why would China try to misrepresent the full extent of its currency outflows?

Simple: it is an ongoing attempt by the PBOC to not precipitate the feedback loop of even further panicked selling of Yuan, even greater purchasing of Bitcoin, even more outflows, and thus, even more reserve depletion.

And while we have yet to obtain the December FX data from SAFE, overnight the PBOC reported that in December China's reserves fell a further $41.1 billion, exactly in line with expectations, reducing China's total reserves to $3.01 trillion, the lowest number in six years, and just fractionally above the $3 trillion cited by various analysts as the key support level below which any further capital outflow would become self-reinforcing. According to a statement by SAFE on Saturday, the December decline in FX reserves was mainly because the central bank supplied funds to maintain balance in the foreign exchange market and the depreciation of non-U.S. dollar currencies. For the full year of 2016, the SAFE said the central bank’s effort to stabilize the yuan was the key reason for the drop in reserves.

That said, when considering the discrepancy with SAFE data, it is likely that the true level of Chinese reserves is now well below $3 trillion, as a simple correlation with China's plunging Yuan demonstrates.

To be sure, China will likely take additional measures to keep its foreign-currency stockpile from slipping too far below the key $3 trillion mark - or whatever the real level of reserves is - to avoid further hurting investor confidence and spurring further declines in the yuan, according to economists at major banks cited by Bloomberg. As documented here over the past week, in a desperate last ditch measure to halt further outflows, since the New Year China rolled out draconian new FX capital controls as well as extra requirements for citizens converting yuan into other currencies after the annual $50,000 quota for individuals reset Jan. 1.

As a result, Yuan volatility exploded last week, with the offshore rate notching up its biggest two-day gain on record just days after completing its worst yearly performance against the dollar as a result of an unprecedented spike in overnight offshore Yuan deposit rates, which forced Yuan shorts to cover all exposure.


Still, according to Gao Yuwei, a researcher at the Bank of China’s Institute of International Finance in Beijing, policy makers now may prefer using capital controls instead of burning through foreign exchange reserves to defend the yuan. It remains to be seen how effective such capital controls will be in the long run as every previous iteration has failed to prevent ongoing capital flight.

“China’s government is well positioned to control outflows more effectively if it wants to, though it may not want to be seen as reversing China’s ‘opening’ strategy,” Wang Tao, head of China economic research at UBS, wrote in a recent note. “In the long run, it may not have much choice if FX reserves fall more sharply on the back of intensifying capital outflow pressures.”

A key question facing China now is whether it has enough reserves. In Tao's note, the UBS analysts said that China does have more than enough FX reserves to cover import bills and foreign debt payment...

As of November 2016, China's official FX reserves stood at $3.05 trillion, down from $3.84 trillion at end-2014. At this level however, they are still 3.5x China's total non-RMB foreign debt, 6x its short-term external obligations, and can cover over 20 months of goods and services imports (minimum requirement is 3 months). The official FX reserves do not include the $110 billion "other foreign currency assets" on PBC balance sheets, long-term foreign assets held by China Investment Corporation and State Administration of Foreign Exchange's corporate subsidiaries, or FX reserves used for recapitalizing policy banks. Don't forget that China still has an annual current account surplus exceeding $200 billion too.

... but not enough for long-term currency defense, even if its disclosed reserves are accurate, liquid and usable:

Most FX reserves are liquid and useable, but not for defending the currency over a long time. We estimate that about 60% of China's FX reserves are held in USD assets (Figure 7), of which about $1.1 trillion is directly invested in US treasuries and the rest in corporate bonds, agency debt and equity. Another $500 billion is estimated to be in developed market government bonds.

UBS also notes that the IMF estimated in 2016 that to withstand a currency attack, China would need between $1.75 trillion (with capital controls) and $2.82 trillion (no capital controls), using its composite metric for FX reserve adequacy as of end-2015. Given that China has some capital controls, its "adequate" reserves level may be somewhere in between. However, if the PBC uses FX reserves to defend the exchange rate for too long, the gradual decline of its reserves may erode confidence.

In short: it's anyone guess i) what the real level of China's true, usable reserves is currently (most likely well below $3.0 trillion), and ii) whether that will be sufficient to wake a prolonged currency attack, both from outside, speculative sources, and continued outflows predicated by Chinese savers seeking to park their cash offshore.

Aside from its dollar reserve, China also reported that the value of its official gold holdings dropped to $67.9 billion by the end of December, down from $69.8 billion a month earlier, as a result of the drop in the price of gold. The nation kept gold reserves unchanged at 59.24 million troy ounces for a second month in December, the first time it disclosed a halt in gold purchases for two consecutive months since disclosing holdings as of June 2015. Just like with its misrepresentation of its reserve outflows, many analysts are skeptical that China reveals the truth about its gold holdings.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
38BWD22's picture



China is a place with many grave problems, they are hard to see and study because their government is so opaque.

I would even doubt their gold ownership figure cited at the end of the article.  It could be much higher (I don't know).

China seems to me to be a ticking time bomb that may explode and badly damage the world economy.


29.5 hours's picture

<< China seems to me to be a ticking time bomb that may explode and badly damage the world economy. >>

The world seems to be full of ticking time bombs right now. The U.S. is most likely the biggest explosion about to happen...

Stuck on Zero's picture

Yes. Isn't it shocking that a government would deliberately disseminate false information?

Midas's picture

Audit the RED FED!!   Ahh, who am I kidding, I don't give a shit.  Be your own central bank.  Stack.

knukles's picture

And y'all thought that BLS data was questionable.

Arnold's picture

It's like looking into a black mirror.

Mountainview's picture

Reality is Chinese are fleeing from the US$ into hard tangible assets. Look what is going on in France, Switzerland, whole Africa and others. Chinese are buying industries, farmland (including vineyards in Bordeaux and Burgundy) and real estate. The last gimmick are football players (they are loosing their mind).

U4 eee aaa's picture

Interesting how they all seem to be stacked like dominoes.

Hmmmm, maybe just a coincidence

Bay of Pigs's picture

I think it's safe to assume their gold holdings are much higher than reported. The gold shops I saw in Hong Kong and Shenzhen last summer blew my mind. Not to mention the volume of physical now flowing on the Shanghai exchange. While they may be degenerate gamblers, they aren't stupid.

Meanwhile, back in the USA and our ever growing national debt at $20T, which is rising at over $1T a year, we throw stones at the reckless Chinese. The irony and hypocrisy is not lost on some here.

38BWD22's picture



I have not been there in decades.  But, I sure would like to see some of those gold shops (I have read that Dubai is incredible as well re their gold souk).

Hear you re our national and other debts.  That, among other reasons, is why I have been a buyer of gold since the mid-1980s.


UnschooledAustrianEconomist's picture

Don't you forget about us honest Europeans. We worked hard to bring something to the table, too.

Credit to those who deserve.

38BWD22's picture



A little over a month ago my wife and I had the pleasure to be briefly in Vienna.  While she (& our daughter) toured Vienna's landmarks, I went to the Munze's shop there and bought my first Platinum Philharmonic.  

Ah yeah, that's pretty representative of how I spend my time...


Midas's picture

Do you speak Austrian?

knukles's picture

Si   Así que puedo ayudarle?

Consuelo's picture





What's that old Chinse proverb BoP - something about 'make a sound in the East, then strike in the West'...?

Kayman's picture

So clear this up for me.  The Yuan is pegged to the USD or the USD is pegged to the Yuan ?

And what brave country is going to make their currency fully convertible into physical gold?


Spectre's picture

"may explode and badly damage the world economy"


There are other words besides "damage" you could of used, like Global Financial Implosion.

U4 eee aaa's picture

Confuseus say:

The government with many grave problems soon will have many grave problems

Kayman's picture

"many grave problems,"

Old Chinese saying, "Many grave problems solved with graves"

RagaMuffin's picture

How do you say "Truth is treason in the empire of lies" in Chinese...........feels weird to rely on GS for "truth"

dude duderson's picture

No wonder they were throwing everything at dow 20k last week...might be the only chance they have left to see these market levels.

RagaMuffin's picture

Hell of a choice bitcoin or the DOW......    ;-)

Suleyman's picture

Tyler needs to inject the word Bitcoin in every article - interesting.

directaction's picture

Dude, China is flat broke ... lol. 
Can't wait to see what they do now.  

LawsofPhysics's picture

Dude, the planet is insolvent. The question is was what will everyone be holding when ALL fiat is dead.

Dragon HAwk's picture

Bullets and Gold... Both worth their weight in.. errrr  Beans

Herdee's picture

They're withdrawing a lot while the dollar is high. Smart move on depletion of treasuries because the first half of the year looks good for dollar strength but after that I suspect that any interest rate increase will kill everything and it'll start the reduction back down to zero. Not even Donald Trump and his big plans for spending can stop the catastrophe that awaits the world ponzi schemes of economics.

bankonzhongguo's picture

The evolving dimension to this is not the "data" but how prominent GS is becoming a specific adversary to China in general - by these kinds of analysis AND its control of the Trump economic policy and emerging Taiwan public policy.

First-off, everything reported in/by/for China is wrong. Everyone knows this. On the best day, actual metrics are half the strength of the reported numbers - debt, growth, asset value, location of assets and the permissions to make decisions are all gamed.

Secondly, (and not unlike the US these dayz) the policy projections and intentions from Beijing and the Party will never materially impact local conditions. SAFE, PBOC and the rest cannot overcome PLA connections and the need to buy Las Vegas real estate. Nature finds a way. There are no ethics or morals - only power. Rules are for the little people. They teach fascism with Chinese tendencies to Harvard MBAs for the last 15 years.

China can always play the Motherland card meaning that not being patriotic enough to the Motherland puts you and your family on "a list." This applies to China business owners as much as GS.

China (should) be using its machines to mint/mine gold for its own reserves for the next century. They claim they are playing the long game and can take all kinds of abuse in the interim. Chances are they are just muddling through, but owning the machines, emerging basic sciences, exporting deflation and the capacity to demand payment in any form they want are critical factors to wag the dog.

Not sure what Trump/GS can play when interest rates can have such an impact and the Fed is the primary buyer. Doubling debt at low rates in 8 years does not prepare a battle field very well.

You are talking about a civilization that likely discovered America before Columbus and said; "So what?"


Kayman's picture


1. Goldman works for Goldman. If they act as an agent, they will take the skim, and play both sides.

2. 'China can always play the Motherland card meaning that not being patriotic enough to the Motherland puts you and your family on "a list." '  

Exactly, so the real question is when does China repatriate all that money that has gone into foreign real estate.  I take it, of course, that the list is written in pencil.


pitz's picture

Minimal Chinese money has gone into foreign real estate. 

kenny500c's picture

"Vancouver became such a popular destination for Chinese buyers that it prompted a vocal and controversial backlash this summer. In July, British Columbia announced a 15-per-cent tax for foreigners buying homes in Vancouver, while Ottawa introduced new regulations preventing buyers from improperly claiming a primary-residence deduction.


For many Chinese, buying a house overseas is seen as a crucial investment in the next generation."

hedgiex's picture

You are conflating a civilization/culture with PRC nationalism. The culture has survived many nationalism even foreign dominations. It is also not a given that the culture or its civilization can survive the ongoing new industrial age. What loss is it to humankind if just another civilization bites its dust ? 

Dragon HAwk's picture

Everybody keeps saying China has Gold.. but is it the Government or the People... remember the Chinese are very good at raping and pillaging the Government Coffers..  Just because some bank says they have Gold... doesn't mean that's who Owns it and takes possession on some dark night when the lights go out, and their pass key works.

Suleyman's picture

Gold ownership by governments is largely a public relations issue.


Catalonia's picture

Yuan and RUB seem like an incredibly good deal. Both countries are doing a lot better than they were 15 years ago, specially Russia, and yet their currencies have gotten weaker while gold reserves are going up.

kenny500c's picture

Canadian housing crash inevitable without Chinese cash, anyone know how to play it?

Arnold's picture

Watch out for overbuilt rental space.

Local and state taxes will be the profit suckers from rental income, over supply lowers income.

Find a sucker, or clear the expences.

Kayman's picture

Read  that Vancouver aggregate house prices approaching C$ 1 Trillion. That is a lot of paper value to tax.  

pitz's picture

Chinese participation in Canadian RE is negligible.  Canada's housing prices are elevated due to a subprime credit bubble, in Canada, created by Canadians.

kenny500c's picture

"Vancouver became such a popular destination for Chinese buyers that it prompted a vocal and controversial backlash this summer. In July, British Columbia announced a 15-per-cent tax for foreigners buying homes in Vancouver, while Ottawa introduced new regulations preventing buyers from improperly claiming a primary-residence deduction."

Get it?

Consuelo's picture



 "Just like with its misrepresentation of its reserve outflows, many analysts are skeptical that China reveals the truth about its gold holdings."


In the long-term geo-political strategy-of-things, this is the only sentence in the entire piece of any importance.


Consuelo's picture



- China is far yet from being on its knees.   The 'use' of gold to shore the ¥RMB will likely be a last resort, as doing so would essentially amount to an act of war against the U.S.    We already label them a 'currency manipulator'.   What would the Western financio-politico establishment label them if they had media event which revealed a secure vault of 10,000+ tonnes of physical gold (highly conservative estimate), as sole property of the PRC, ready to back the ¥uan...?    

Know what a Kirby vacuum sounds like...?

Kayman's picture

So the brave China kid is de-pegging... when ???  Crickets. 

Holding gold is relatively costless when Central Banks hold interest rates at the zero bound.

RMolineaux's picture

People are constantly talking about "depreciation" of the Chinese yuan.  Apparently they are totally unaware that such talk only refers to its relationship to the dollar.   The index that determines the value of the dollar consists of six currencies, of which the yuan is NOT one.  

Tragically, Chinese wealth holders suffer this same myopia.  They believe they are losing money because the value of the yuan has dropped in relation to the dollar,  and so attempt, by all means possible, to convert their yuan to dollars.  Based on a long history, Chinese do not trust their government, banks or party in preference to personal or family interest.  The result is a destructive capital flight which disrupts the government's plans for economic stability and the long-term internationalization of the yuan.     

francis scott falseflag's picture


We'll never know the total Letters of Credit denominated in USD that were deposited by Chinese manufacturers of Christmas gewgaws in their accounts at the PBOC.


The inflow of USD the month or two before Christmas must have something to do with the PBOC's reported dollar reserves.


Charvo's picture

From my perspective, Chinese folks are borrowing money like crazy.  A lot of that money is flowing overseas into dollars.  Evidently, the new yuan printed has pumped up everything in China that rich people like to buy like real estate.  The problem will be when food prices rise.  The folks in charge don't want food prices to rise because that means riots.

A lot of these government people in Asia are corrupt like crazy.  There is probably yuan being printed up and sent to top officials every month.   

Mike Powell's picture

In other word, this could be the sign that Chinese are dumping, I mean selling U.S. t-bills and other paper-related assets.