Does China have enough U.S. dollars to survive the trade war?


By Karen Yeung
South China Morning Post, Hong Kong
Friday, May 30, 2019

The Chinese government is officially sitting on the world's largest stockpile of foreign exchange reserves, but it has been scrambling recently to block backchannels for capital outflows as trade tensions with the United States increase.

Beijing's increasing scrutiny of the use of the U.S. dollar by Chinese companies and individuals, in the absence of any immediate signs of a financial crisis, along with accelerating efforts to lure in foreign capital, have raised suspicions among analysts that the world's second-largest economy is worried about the risk of running short of the U.S.

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On the surface, China should be the last country to worry about a shortage -- about two-thirds of its U.S.$3.1 trillion worth of foreign exchange reserves, the world's largest, are believed to be held in U.S. dollar-denominated assets.

But the huge foreign reserves and a relatively stable currency do not reflect the true stresses underlying the economy, analysts said, because the concerns are that those reserves may not be enough to provide the safety buffer needed to pay for China's imports and pay off its debt in adverse circumstances if the yuan faced a devaluation or a sharp drop in value. ...

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