Explainer | What’s the state of China’s US$3 trillion forex reserves war chest, and where is it invested?

China has the world’s largest foreign exchange reserves, which totalled US$3.22 trillion in January, according to State Administration of Foreign Exchange

Some have argued China needs to reduce the size of its foreign exchange reserves, while others believe having a sizeable holding remains important

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China has the world’s largest foreign-exchange reserves, which totalled US$3.24 trillion in December, according to the State Administration of Foreign Exchange. Photo: AP

Published: 11:00pm, 9 Feb 2024Updated: 1:29am, 10 Feb 2024

The Chinese yuan has come under renewed pressure against the US dollar since the start of the year amid China’s uneven post-Covid economic recovery, persistent deflationary pressures, a prolonged housing slump and heightened geopolitical tensions.

Over the years, China has built a sizeable war chest to defend the yuan, including about US$3 trillion in foreign exchange reserves.

Where does China invest its foreign exchange reserves?

Driven by its high export revenues, China has the world’s largest foreign exchange reserves, which totalled US$3.22 trillion in January, according to State Administration of Foreign Exchange (SAFE).

China’s foreign exchange reserves had stood at US$3.24 trillion in December, having risen from US$3.17 trillion in November, the exchange regulator said.

SAFE, though, does not disclose where it invests China’s foreign exchange reserves.

But according to the US Department of the Treasury, which publishes monthly data on all foreign holders of US debt, China has historically been among the top foreign holders, along with Japan.