China clung to US dollars in 2015 as its stock market crashed and capital flowed out, SAFE figures show

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Despite the stock market rout and capital exodus of 2015, China’s holdings of US dollars as a proportion of its foreign exchange remained rock solid throughout the year, figures from an official report show.

The State Administration of Foreign Exchange (SAFE) said in its 2019 annual report published on Friday that US dollars accounted for 58 per cent of its total reserves at the end of 2015, unchanged from the end of 2014.

It did not give equivalent figures for any of the years since 2015 or a detailed breakdown of the country’s US$3.1 trillion stockpile of foreign currencies.

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The SAFE traditionally kept the currency structure of China’s foreign reserves a secret, until July last year when it said in its annual report for 2018 that US dollar assets accounted for 58 per cent of the total at the end of 2014, down from 79 per cent at the end of 1995.

Before those figures were released, most analysts thought the dollar accounted for at least two thirds of China’s reserves, suggesting Beijing had been quite aggressive in diversifying its holdings. US dollar reserves ballooned from US$73.6 billion at the end of 1995 to an all-time high of US$3.99 trillion at the end of June 2014.

The lack of movement in reserve percentage terms from 2014 to 2015 may reflect Beijing’s changing attitude towards the US dollar at the time. The 2015 stock market crash sparked severe financial turbulence and resulted in the authorities cutting the value of the yuan by 2 per cent against the dollar – bringing to an end a decade of appreciation for the currency.

China also imposed much tighter capital account controls in 2015 to prevent outflows and defend against “hot money” inflows. As a result, its forex reserves fell by about 500 billion yuan over the course of the year to US$3.33 trillion.

China has ‘price to pay’ for cutting US dollar share of forex reserves, analysts say

The SAFE report said that risk prevention would be a key feature of the management of foreign exchange reserves in 2020. Managers would “strengthen bottom line thinking” – jargon that implies they are preparing for the worst – and improve “analysis, early warning, evaluation and response to all types of risks”, it said.

The agency also said it was now using big data and artificial intelligence to detect irregular foreign capital deals.

At a recent meeting, the SAFE said it had “zero tolerance” for underground cross-border money transfers and cross-border gambling.

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