On Friday, alongside China’s announcement that it had bought over 600 tons of gold in “one month”, the PBOC released another very important dat point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.We then put China’s change in FX reserves alongside the total Treasury holdings of China and its “anonymous” offshore Treasury dealer Euroclear (aka “Belgium”) as released by TIC, and found that the dramatic relationship which we first discovered back in May, has persisted – namely virtually the entire delta in Chinese FX reserves comes via China’s US Treasury holdings. As in they are being aggressively sold, to the tune of $107 billion in Treasury sales so far in 2015.We explained all of this on Friday in “China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium“, and frankly we have been surprised that this extremely important topic has not gotten broader attention.Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity, had to say on the topic of China’s dramatic reserve liquidation.Incidentally, $520 billion is roughly triple what implied Treasury sales would suggest as China’s capital outflow, meaning that China is also liquidating some other USD-denominated asset(s) at a feverish pace. So far we do not know which, but the chart above and the magnitude of the Chinese capital outflow is certainly the biggest story surrounding the world’s most populous nation: what is happening in its stock market is just a diversion.At this point JPM goes into a tangent explaining what the practical implications of a massive capital outflow from China are for the global economy.
China’s Record Dumping Of US Treasuries Leaves Goldman Speechless
August 5, 2015 no comments