The details of China’s current account may be more interesting right now than the details of China’s financial account. In broad terms, the reversal of net FDI flows and foreign bond sales have taken $200b out of China over the last 4qs of data.
That leaves a roughly $200b net influx of fx from the measured current account (the real current account is likely bigger), which is roughly equal to the build up of reserves and ongoing purchases of foreign bonds by the state banks
Inflows and outflows through the state banks are fairly balanced, but China’s did pull back on its external lending over the last 4qs. Even after accounting for this, I though still find a net increase in the state’s total external assets through q2
Big picture, China’s external bank lending and its external bank borrowing are sliding a bit, but the net position remains huge.
This large net position, together with the foreign bonds held by the state banks and the foreign equities held by the CIC are what I call China’s hidden reserves … which remain substantial (formal reserves are also up, using the BoP data)
That is what a close up also shows — on net the PBOC and the state banks look to have continue to add to their foreign assets in the second quarter (pressure on the CNY intensified in q3, so this could have changed)
But so far, 2023 doesn’t look at all like 2015 — outflow pressure is modest relative to the large surplus, and the state on net was still adding to its foreign asset position in the second quarter.
The key point is that even with $100b in FDI outflows and a $100b reduction in foreign holdings of Chinese bonds (over last 4qs), China still has a $200b net influx of fx … there isn’t a ton of pressure on China’s BoP right now.
This is the key chart. The balance of payments measure of reserve growth doesn’t map perfect to the PBOC’s balance sheet (which irritates me). But the BoP measure showed an increase in reserves in q2 — and modest fx sales from the state banks.
