Implications of China’s
foreign exchange reserves
for the global economy
Andong Zhu
Tsinghua University
New Delhi, India
2008.1
Outline





The Accumulation of Foreign Reserves
The Sources of Foreign Reserves
The Costs of Holding Huge Amount of
Forex
What Can We Do with the Foreign
Reserves
Implications of China’s foreign exchange
reserves for the global economy
GDP Growth Rate of China：1979-2006 (%)
16
15.2
14
13.5
12
6
4
11.611.3
10.9
10.9
10.7
10.2
10.1
10.0
10.0
10
8
14.2
13.9
13.1
9.0
9.2
8.9
9.3
9.1
7.8 7.6
7.6 7.8
8.4 8.3
5.3
4.1 3.8
2
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
0
Foreign Reserves of China ($Bn): 1978-2007
1800
1528
1600
1400
1200
1066
1000
819
800
610
600
400
200
0 1 -1 3 7 9 8 3 2 3 3 6 11 22 19 21
403
286
212
145155166
140
105
52 74
-200
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
The Rapid Increase of Forex
2006
2007
Month
Amount
Month
Amount
1
8451.8
1
11046.92
2
8536.72
2
11573.72
3
8750.7
3
12020.31
4
8950.4
4
12465.66
5
9250.20
5
12926.71
6
9411.15
6
13326.25
7
9545.5
7
13852
8
9720.39
8
14086.41
9
9879.28
9
14336.11
10
10096.26
10
14548.98
11
10387.51
11
14969.06
12
10663.44
12
15282.49
Foreign Reserve,Foreign Capital and NEX in China (Bn$)
1800
1600
Reserve
Foreign Capital
Accumulated NEX by Chinese firms
1400
1200
1000
800
600
400
183
139
200
81 100
70
59
49
39
23
31
18
0
350
809
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
-200
231 285
520
461
408
681
625
570
745
883
Who "Earned" Foreign Exchange for China with Trade (bn $): 1978-2006
500
456
400
Accumulated NEX by Foreign Companies
Accumulated NEX
Accumulated NEX by Chinese firms
291
300
200
159
100
100
118
176
198
135
76
35
0
-100
-200
-1 -3 1980
-2 0 1984
-2
-5 -5 1982
1978
1988
-16 1986
-26 -28 -35
-2
1990 -19 1992
1994
-12 1996
-15
-22
-28
-41 -30
1998
2000
2002
2004
2006
The Costs of Holding Huge Amount
of Forex




The Loss due to depreciation of USD
The Colonization of the Chinese Economy
The Uneven rate of return
……
Share in Industry Output by
Ownership (%)
60
Foreign Owned
SOE
Collective
Domestic Private
50
4054.61
35.63
7.48
56.17
32.99
5.55
30
51.52
35.07
6.32
34.02
9.83
2047.01
37.34
37.72
13.69
36.59
15.14
1033.97
36.32
39.39
9.15
031.62
38.11
11.7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
28.24
38.41
9.01
Foreign Capital’s Share in Different Industries in
China:2005
90
30
8 8
0
4
0 1 2
46
50
40
40 43 43
38 39
36
37
32 33 34 34 35
27 28 29
23 25 25 25 26
18
20
15
10 11 11 13
10
53 55
60
84
Foreign Capital’s Share in the Output of Different Industries in China
(%)
80
66
61
63
70
Manufacture of Communication Equipment, Computers
Manufacture of Measuring Instruments and Machinery
Mining of Other Ores
Manufacture of Articles For Culture, Education and
Manufacture of Furniture
Manufacture of Leather, Fur, Feather and Related
Manufacture of Textile Wearing Apparel, Footware, and
Manufacture of Transport Equipment
Manufacture of Plastics
Manufacture of Artwork and Other Manufacturing
Manufacture of Rubber
Manufacture of Electrical Machinery and Equipment
Manufacture of Metal Products
Manufacture of Foods
Manufacture of Paper and Paper Products
Manufacture of Beverages
Production and Supply of Gas
Recycling and Disposal of Waste
Printing,Reproduction of Recording Media
Processing of Food from Agricultural Products
Manufacture of Chemical Fibers
Manufacture of General Purpose Machinery
Manufacture of Raw Chemical Materials and Chemical
Manufacture of Textile
Manufacture of Special Purpose Machinery
Manufacture of Medicines
Processing of Timber, Manufacture of Wood,
Manufacture of Non-metallic Mineral Products
Smelting and Pressing of Non-ferrous Metals
Smelting and Pressing of Ferrous Metals
Production and Supply of Electric Power and Heat
Processing of Petroleum, Coking, Processing of Nuclear
Production and Supply of Water
Extraction of Petroleum and Natural Gas
Mining and Processing of Nonmetal Ores
Mining and Processing of Non-Ferrous Metal Ores
Mining and Processing of Ferrous Metal Ores
Mining and Washing of Coal
Manufacture of Tobacco
Share of Different Ownership in Different
Industries in China:2005
100
90
Foreign Owned
Domestic Private
State-owned/controlled
80
70
60
50
40
30
20
10
0
Manufacture of Communication Equipment,
Manufacture of Measuring Instruments and
Mining of Other Ores
Manufacture of Articles For Culture, Education and
Manufacture of Furniture
Manufacture of Leather, Fur, Feather and Related
Manufacture of Textile Wearing Apparel, Footware,
Manufacture of Transport Equipment
Manufacture of Plastics
Manufacture of Artwork and Other Manufacturing
Manufacture of Rubber
Manufacture of Electrical Machinery and Equipment
Manufacture of Metal Products
Manufacture of Foods
Manufacture of Paper and Paper Products
Manufacture of Beverages
Production and Supply of Gas
Recycling and Disposal of Waste
Printing,Reproduction of Recording Media
Processing of Food from Agricultural Products
Manufacture of Chemical Fibers
Manufacture of General Purpose Machinery
Manufacture of Raw Chemical Materials and
Manufacture of Textile
Manufacture of Special Purpose Machinery
Manufacture of Medicines
Processing of Timber, Manufacture of Wood,
Manufacture of Non-metallic Mineral Products
Smelting and Pressing of Non-ferrous Metals
Smelting and Pressing of Ferrous Metals
Production and Supply of Electric Power and Heat
Processing of Petroleum, Coking, Processing of
Production and Supply of Water
Extraction of Petroleum and Natural Gas
Mining and Processing of Nonmetal Ores
Mining and Processing of Non-Ferrous Metal Ores
Mining and Processing of Ferrous Metal Ores
Mining and Washing of Coal
Manufacture of Tobacco
National Total
0
19910102
19910510
19910820
19911202
19920317
19920626
19921008
19930119
19930503
19930811
19931122
19940310
19940621
19940929
19950112
19950502
19950811
19951123
19960319
19960628
19961011
19970122
19970521
19970902
19971216
19980413
19980723
19981104
19990304
19990615
19990923
20000114
20000516
20000824
20001211
20010405
20010723
20011107
20020306
20020621
20021014
20030128
20030519
20030901
20031219
20040413
20040730
20041118
20060310
20060627
20061012
20070125
20070518
20070828
20071211
The Shanghai Stock Market
Composite Index:1991-2008
7000
6000
5000
4000
3000
2000
1000
Take away Profits, Leave GDP
and…
Pollution
Pollution in the World:1999
The Uneven rate of return


Foreign investment in China: 22%
US Treasury Bond: around 5%
What Can We Do with the Foreign
Reserves



Invest Abroad
Lending Abroad
……
Implications of China’s foreign exchange
reserves for the global economy




For developing Countries:
Another source of Investment fund;
Another source of borrowing
with a more equal relationship
Foreign Debt of Developing countries ($):1970-2004
5.0E+11
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
Low & middle income
Low income
Lower middle income
Middle East & North Africa
Middle income
South Asia
Sub-Saharan Africa
Upper middle income
4.5E+11
4.0E+11
3.5E+11
3.0E+11
2.5E+11
2.0E+11
1.5E+11
1.0E+11
5.0E+10
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
0.0E+00
Implications of China’s foreign exchange
reserves for the global economy






For developed Countries:
Another source of Investment fund;
Another source of borrowing
A competing lender
A competing investor
Implications of China’s foreign exchange
reserves for the global economy


For the Global Economy:
Strengthen the bargaining power of
the developing countries?!