My Take | The US$3.2 trillion question: how much of China’s forex reserves for Hong Kong?

11 hours ago

My Take | The US$3.2 trillion question: how much of China’s forex reserves for Hong Kong?

China’s central bank chief Pan Gongsheng promised to park more of the country’s US$3.2 trillion foreign exchange reserves in Hong Kong, fanning speculation about how much more Beijing can earmark for the city’s assets.

Beijing has always guarded the details of its forex portfolio reserves as classified information, so the exact amount of reserve funds available for Hong Kong markets remains unknown. Pan, who led the State Administration of Foreign Exchange (Safe) for eight years until November 2023, said Beijing would “significantly” increase the weighting of Hong Kong assets, but did not reveal specifics.

Safe has offered a limited glimpse into the composition of China’s forex reserves in its annual reports since 2018, when it started disclosing the share of US dollar-denominated assets with a four-year lag. In its 2023 report, released in October, Safe disclosed the share of US dollar assets in 2019.

According to the officially disclosed data for the years 2014 to 2019, the share of US dollar assets in China’s foreign exchange reserves hovered between 55 per cent and 59 per cent during the period. In 2019, the share of US dollar assets fell to 55 per cent, while “other currencies” accounted for the rest. Safe did not break down what the other currencies consisted of, but it previously disclosed that China’s non-dollar reserves were made of euro, sterling, yen, won and a small percentage of Hong Kong dollars.

China is likely to keep around half of its portfolio in US dollars to prioritise “safety”. After all, the dollar assets, including US treasuries, remain one of the world’s most liquid and secure asset classes for Beijing.

Safe has been comparing the dollar weighting in China’s foreign exchange reserves to the global average. It said China’s reserves were already “more diversified” than the global level of 61 per cent in 2019, suggesting that the country is in no position to greatly cut its US dollar assets.

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