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According to the U.S. Treasury Department, Chinas famous cash reserves are equal to 40% of its GDP. It holds over $3.3 trillion in a reserve account, often used to soak up dollars in the Chinese economy in an effort to keep the yuan from appreciating too fast over the last several years. China has more money sitting in the People Bank of Chinas (PBoC) rainy day fund, if you will, then the combined value of the Spanish and Italian economies. Their reserves, if measured as GDP, would mean a per capita income in China of around $2,500, more than the per capita income of India.
Thats a lot of money.
But how much longer can the PBoC soak up all that cash?
Economists at Nomura Securities tried to answer that question in a 44 page report. The takeaway? Chinas days as one giant dollar sucking machine are drawing to a close. The batteries are dying. China will soon stop accumulating mass amounts of international reserves, and the yuan and dollar fight will end. All of this will likely take place in just three years.
Four key factors are driving Chinas current account surplus into a deficit by 2014. Together with decreasing net capital inflows, this should cause Chinas balance of payments (BOP) to also swing into deficit by 2015. From Nomuras point of view, Chinas balance of payments what is essentially the governments check book will be impacted by a reduction of forex reserve accumulation. Less money in. More money out.
How much less?
They estimate that it will go from $334 bill in 2011 to $267 billion this year; then to around $189 billion in 2013 and $43 billion in 2014 before falling outright by $32bn in 2015.
Chinas forex reserves are primarily driven by its BOP surpluses, and so the stock of forex reserves $3.3 trillion as of March 2012 can be thought of as the accumulation of BOP surpluses. Chinas reserves are a very handy indicator. They not only indicate the degree of forex intervention in China, but also the size of Chinese official investments in fixed-income markets overseas, most notably into U.S. Treasurys. The change in forex reserves can also provide a useful summary of Chinas overall BOP position what China is bringing into the country in the form of direct investment and export revenues compared to what it is spending. And China is spending more as it tries to build a social safety net for an aging population that has none.
China is changing.
As China changes, so does its cash flow.
Nomura forecast Chinas current account surplus to turn to a deficit by 2014. Note that the dollar value of Chinas merchandise trade and current account surpluses both peaked in 2008, as Chinas import growth outpaced export growth. On the trade side, Nomura expects Chinas export growth to be 11.6% in 2012 and 11% for each year over the 2013-15 period.
China is growing. But the capital B boom investors have grown accustomed to is more of a lower case boom. And some quarters, it might even be a dud. Investors will have to stick local instead of buying the exporters.
How Much Longer Can China Accumulate Reserves? - Forbes
China's forex reserve growth 'peaked' says Nomura - MarketWatch
Thats a lot of money.
But how much longer can the PBoC soak up all that cash?
Economists at Nomura Securities tried to answer that question in a 44 page report. The takeaway? Chinas days as one giant dollar sucking machine are drawing to a close. The batteries are dying. China will soon stop accumulating mass amounts of international reserves, and the yuan and dollar fight will end. All of this will likely take place in just three years.
Four key factors are driving Chinas current account surplus into a deficit by 2014. Together with decreasing net capital inflows, this should cause Chinas balance of payments (BOP) to also swing into deficit by 2015. From Nomuras point of view, Chinas balance of payments what is essentially the governments check book will be impacted by a reduction of forex reserve accumulation. Less money in. More money out.
How much less?
They estimate that it will go from $334 bill in 2011 to $267 billion this year; then to around $189 billion in 2013 and $43 billion in 2014 before falling outright by $32bn in 2015.
Chinas forex reserves are primarily driven by its BOP surpluses, and so the stock of forex reserves $3.3 trillion as of March 2012 can be thought of as the accumulation of BOP surpluses. Chinas reserves are a very handy indicator. They not only indicate the degree of forex intervention in China, but also the size of Chinese official investments in fixed-income markets overseas, most notably into U.S. Treasurys. The change in forex reserves can also provide a useful summary of Chinas overall BOP position what China is bringing into the country in the form of direct investment and export revenues compared to what it is spending. And China is spending more as it tries to build a social safety net for an aging population that has none.
China is changing.
As China changes, so does its cash flow.
Nomura forecast Chinas current account surplus to turn to a deficit by 2014. Note that the dollar value of Chinas merchandise trade and current account surpluses both peaked in 2008, as Chinas import growth outpaced export growth. On the trade side, Nomura expects Chinas export growth to be 11.6% in 2012 and 11% for each year over the 2013-15 period.
China is growing. But the capital B boom investors have grown accustomed to is more of a lower case boom. And some quarters, it might even be a dud. Investors will have to stick local instead of buying the exporters.
How Much Longer Can China Accumulate Reserves? - Forbes
China's forex reserve growth 'peaked' says Nomura - MarketWatch
