The Economist’s article draws heavily on the work of Logan Wright of Stone and McCarthy, who has done superb work on this topic.
Logan Wright, a Beijing-based analyst at Stone & McCarthy, an economic-research firm, has done some statistical detective work to make sense of the figures. The first problem is that reported reserves exclude the transfer of foreign exchange from the PBOC to the China Investment Corporation, the country’s sovereign-wealth fund. The reserve figures have also been reduced in book-keeping terms this year by the PBOC “asking” banks to use dollars to pay for the extra reserves that they are now required to hold at the central bank. Adding these two items to reported reserves, Mr Wright reckons that total foreign-exchange assets rose by an astonishing $393 billion in the first five months of 2008 (see chart), more than double the increase in the same period last year.
I literally have nothing to add! Do check out the chart that accompanies the article; it highlights that China’s current foreign asset growth, annualized, is a lot closer to a trillion dollars than half a trillion dollars.
Logan Wright’s article on the bureaucratic rivalry between SAFE and the CIC — itself a spillover of the rivalry between the PBoC and the Ministry of Finance — is also well worth reading.
When I visited Beijing last November, a journalist based there quipped that the PBoC and the Ministry of Finance have been at each others’ throats since 1949. Their rivalry historically hasn’t had much impact on the rest of the world. Now each influences – as the CIC is consider closer to the Finance Ministry than to the PBoC, though it reports to the State Council — a rather substantial pool of funds to invest abroad. And given how fast China’s foreign assets are growing, each could soon control a lot more funds.