Something strange is going on in China. On one hand, as the chart below shows, China's trade surplus is growing and growing, and just hit record highs. In other words, China is - on paper - receiving record amounts of foreign currencies in exchange for its (mostly) goods exports.
That much is clear in the Chinese (record) trade balance chart below:
Yet on the other hand, a chart from Deutsche Bank shows something very peculiar: even as China's foreign reserves should be rising, they are not only dropping, but just suffered their biggest quarterly drop in the past decade!
This validates what the TIC data has shown recently, namely that China has not only not been adding to US Treasury but reduced its TSY holdings to the lowest since February 2013, and that contrary to what some have alleged, China is not using Belgium as an offshore-based conduit for Treasury accumulation.
A bigger question is just what is China buying "off the books" to account for this reserve decline, amounting to about $100 billion in Q3, or is this merely due to even more off the books "capital flight" as some has speculated. Or is China indeed actively buying commodities - either as shown here previously for Commodity Funding Deals involving gold or in physical bulk, perhaps to quietly fill up its new Strategic Petroleum Reserve (see "Record Oil Tankers Sailing to China Amid Stockpiling Signs") - and bypassing the official ledger in doing so. If so, which commodities is China buying, and how big will the foreign reserve plunge be in the fourth quarter.
For the answer to the latter we will check back in a little over a month when the "official" data is released. As for the former, one can only speculate.