[The Epoch Times, July 24, 2022](Reported by Li Siqi, a reporter from the Epoch Times Special Department) The International Capital Flows Report (TIC) released by the U.S. Treasury Department on July 18 showed that the balance of U.S. debt held by Chinese investors at the end of May It was $980.8 billion, a drop of $22.6 billion in a month and the first time it has fallen below $1 trillion since June 2010. New official data from the Chinese Communist Party also showed that China‘s foreign exchange reserves fell sharply in June.
TIC data shows that since December last year, China has continuously reduced its holdings of U.S. debt; as of May this year, the cumulative half-year reduction amounted to $87.9 billion. Countries including Britain, Switzerland, Taiwan and India increased their investment in U.S. debt in May. The United Kingdom, in particular, increased its holdings of U.S. debt by $21.3 billion in May.
According to data released by the State Administration of Foreign Exchange in July, China‘s foreign currency reserves at the end of June fell by US$56.5 billion from the end of May, while the total official reserve assets, including foreign exchange reserves, fell by 588%. One hundred million U.S. dollars. In the first half of 2022, China‘s foreign exchange reserves fell by $150.36 billion, with June’s decline accounting for 38%.
Regarding Chinese investors’ U.S. bond holdings falling below $1 trillion for the first time at the end of May, Tianjun political and economic researcher Albert Song told The Epoch Times on July 21: “The data in June is more worthy of attention. China‘s foreign exchange in June Reserves decreased by 56.5 billion US dollars, while China maintained a trade surplus in June, that is, the export volume was greater than the import volume, especially the trade surplus with the United States, which earned a lot of dollars. Moreover, the current and financial funds in China‘s balance of payments No big swings. So, where did the foreign exchange go?”
According to the information released by the General Administration of Customs of China, the trade surplus in June was US$97.94 billion, a record high; the trade surplus in the first half of the year was US$385.44 billion. The inflow of foreign exchange reserves mainly depends on trade surplus, foreign investment and external borrowing. China‘s balance of payments statement for the second quarter has not yet been released, but the surplus in foreign exchange settlement and sales by banks in June was US$5.9 billion, and the cumulative surplus in bank foreign exchange settlement and sales in the first half of the year was US$85.2 billion.
Song Weijun explained that China‘s reduction of US debt is to withdraw foreign exchange funds for importing necessary materials and repaying foreign debts. He said: “After the Fed started the process of raising interest rates, there was a phenomenon of rapid capital outflow from China. For example, China experienced capital outflows worth 17.5 billion US dollars in March, which was a record high at that time. The Institute of International Finance (IIF) said, This capital flight by international investors is unprecedented.”
The capital outflow led to the depreciation of the renminbi. The central parity rate of the renminbi exchange rate announced by the CCP Foreign Exchange Trade Center on July 22 was 6.7522 yuan per US dollar. In March this year, the median price was less than 6.4 yuan.
Song Weijun believes that China‘s foreign exchange reserves are “still relatively tight.” He said: “The foreign debt problem is also the reason why the CCP tries to maintain a certain amount of foreign exchange reserves. As of the end of March 2022, China‘s full-scale foreign debt is equivalent to 2,710.2 billion US dollars, and its short-term foreign debt is equivalent to 1,428.9 billion US dollars, accounting for 53%. Repay over $1.4 trillion in foreign debt.”
Foreign exchange reserves are an important part of a country’s economic strength. They are assets held by a country’s central bank and can be exchanged for other countries’ currencies at any time, usually in US dollars.
Editor in charge: Lian Shuhua