China Steadies Its Reserve Position in March
Are Fears of a Chinese Slowdown Overblown?
After months of declining foreign reserves, China’s foreign reserves grew in March from $3.20 trillion to $3.21 trillion. China’s slowing growth over the past year has caused concern in the global markets that China’s growth phase may come to a crashing halt – and with it the global economy. Since China is a voracious consumer of imported resources to fuel its growth, a decline in China’s growth harms commodity producing countries as demand slows.
While China’s growth has slowed, it appears that the Chinese economy has stabilized (if you believe official Chinese economic data) as producer prices have increased and the Yuan has strengthened over the past month. The increase in foreign reserves was a further sign that perhaps the Chinese growth is accelerating.
Growth Returns to China?
Last week the International Monetary Fund increased China growth projection 0.2 percentage points to 6.5% but downgraded global growth to 3.2%, citing the trend of decelerating Chinese growth on the global economy, notwithstanding the slight up-tick in their Chinese growth projection.
Rise in Exports
Last week China reported an increase in exports for the first time in nine months. The increase in exports of 11.5% year over year was the first increase since last summer and the largest gain since February 2015.
GDP Increase
On Friday, China reported GDP growth of 6.7 percent in the first quarter of the year slightly higher than the IMF’s increased projection, but down from 6.8 percent growth in the fourth quarter of 2015. The supporting data was generally positive as retail sales, new loans, industrial production and fixed asset investment beat most analysts’ expectation.
China’s Foreign Reserve Position
U.S. Treasury Bonds
As of January, 2016, China held $1.237 trillion in U.S. Treasury Bonds, making Chinas the largest foreign holder of U.S. Treasury securities, slightly ahead of Japan’s $1.12 trillion holdings. China had sold off a portion of its Treasury bonds over the past year. That trend may have been broken in February and March with improving Chinese economic conditions. The U.S. Treasury Department reports foreign holders of US Treasuries on a two-three month delay. China’s February U.S. Treasury holdings will be released later this month.
China’s U.S. Treasury holdings have fallen along with overall foreign reserves since May 2015.
Gold
In February 2016, the People’s Bank of China added 10 tons of gold to reserves. China added another nine tons of gold to her reserves in March. It was the smallest monthly addition reserves since China began monthly reporting of its gold reserves last July. Even when China was reducing its foreign reserves, it was adding gold, albeit at a slower pace in February and March of this year.
Since starting monthly gold reporting in July 2015, China has added about 139 tonnes of gold to its reserves.
The People’s Bank of China now has almost 1800 tons of gold as reserves. While this gold hoard places China in fifth place among gold holding nations, it only represents 2.2% of China’s overall reserves. As the price of gold rises, however, the value of China’s gold and overall reserves increases.
Total reported Chinese gold reserves stand at 1,797 tons.
Chinese growth, its U.S. Treasury holdings, gold reserves and value of the Yuan are all now major global economic indicators that were largely irrelevant just twenty years ago.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.
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