The man who knows about the size of central bank reserves needed to defend domestic economic stability says this on Thursday at an economic forum in Sri Lanka (via Bloomberg):
“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
Which is apropos because, via Reuters, on Thursday:
China FX reserves fall $512.66 bln in 2015, biggest annual drop on record – RTRS
BEIJING, Jan 7 (Reuters) – China’s foreign exchange reserves, the world’s largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record, central bank data showed on Thursday. The December figure missed market expectations of $3.40 trillion, according to a Reuters poll. China’s foreign exchange reserves fell $512.66 billion in 2015, the biggest annual drop on record. The value of its gold reserves stood at $60.19 billion at the end of December, up from $59.52 billion at the end of November, the People’s Bank of China said on its website. Gold reserves stood at 56.66 million fine troy ounces at the end of December, up from 56.05 million at end-November.
China, you may have noticed, has switched rather abruptly from being a massive buyer of foreign currencies to a major seller. Some people — including some relatively influential policymakers — are worried that this switch from suck to blow, as it were, could cause Treasury yields to spike. That fear may be animating some of those who think the Fed should adjust its schedule of rate hikes, or even engage in additional large-scale asset purchases.
A Chinese consortium was the biggest buyer of the China Construction Bank stake that Bank of America sold last month, the FT reports, citing several people familiar with the deal. The State Administration of Foreign Exchange, which manages most of China’s $3,200bn in foreign reserves, the National Social Security Fund, and Citic Securities bought the CCB shares. Bank of America sold 13.1bn shares in the Chinese lender – half of its 10 per cent holding – generating $8.3bn in cash for the troubled US bank, and increasing its tier one capital buffer by $3.5bn. Beijing asked Bank of America to sell only half its holdings in CCB, China’s second-largest bank by market capitalisation, the people added. The Chinese government’s involvement comes as domestic bank shares are under pressure due to big capital raising exercises. The sovereign investment arms of Singapore and Qatar also bought into BofA’s CCB stake.
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee … There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.
Chinese officials were busy on Thursday wheeling out a raft of semi-positive, if not lukewarm remarks about their confidence in eurozone investments, after denying an FT report that they were reviewing their holdings of eurozone debt.
Just like practically every other investor in the world, China — which boasts the world’s largest forex reserves – is undoubtedly concerned about the increasingly bleak outlook for eurozone sovereign debt.
But that is not something Beijing – under pressure on its own currency — would care to admit to the world. Read more
China, which boasts the world’s largest forex reserves, is reviewing its holdings of eurozone debt after the crisis that swept the region’s bond markets, reports the FT. Officials with China’s State Administration of Foreign Exchange, or Safe, which manages the reserves, have met foreign bankers in Beijing in recent days to discuss the issue. Safe, which holds an estimated $630bn of eurozone bonds in its reserves, has voiced concern about its exposure to the five so-called peripheral eurozone markets of Greece, Ireland, Italy, Portugal and Spain.
A proposal by Chinese authorities to allow mainland citizens to buy shares listed in Hong Kong has been scrapped, marking the official end of a proposal that once gave high hopes to investors in the territory. The State Administration of Foreign Exchange, or SAFE, a body under China’s central bank which announced the scheme in 2007, said the proposal was one of 19 no longer valid because they had expired. Safe also annulled 36 documents saying they had been replaced by new regulations.
Like so many official decisions in China, there are various reasons — some obvious and some less so — behind the discreet move by China’s foreign exchange regulator, the State Administration of Foreign Exchange, this week to reopen the window for outbound securities investments.
SAFE let it be known on Monday that it has resumed approvals for Chinese institutions to buy overseas securities under its tightly managed offshore investment regime after a 17-month hiatus. Read more
The Chinese foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), announced proposals on its website on Friday to allow individual qualified foreign institutional investors to invest up to $1 bn in local yuan-denominated stocks. That’s a 25 per cent rise on the current $800m maximum.
The idea is to try to attract more medium- and long-term investment, and to make investment operation and risk control more “convenient”. It is especially welcome news after a dire August for the Shanghai Composite index, which recorded its second biggest monthly loss for 15 years amid fears of a slowdown in domestic bank lending. Read more
So China clearly wants it to be known that it is – well, “worried” about its US investments, as per last week’s widely reported remarks by Premier Wen Jiabao.
At the close of China’s National People’s Congress last Friday, Wen expressed concern about the value of China’s large holdings of US assets (it is the largest foreign holder of US public debt) and warned America to take measures to guarantee its “good credit”. He also said China was prepared if necessary to increase public spending further this year to stimulate the economy, reports the FT. Read more
China has lost tens of billions of dollars of its forex reserves through a poorly timed diversification into global equities just before world markets collapsed last year. The State Administration of Foreign Exchange, the opaque manager of nearly $2,000bn of reserves, made huge bets on global stocks early in 2007 and continued at least until July 2008, by which point SAFE had moved well over 15% of China’s reserves into riskier assets.
China’s State Administration of Foreign Exchange (Safe) has agreed to invest more than $2.5bn in the latest TPG fund, in what could be the largest commitment ever made to a private equity firm. The move highlights the growing inclination of sovereign wealth funds to invest through private equity firms – rather than directly – to minimise potential political backlash. It also illustrates the growing importance of SWFs to buyout firms at a time when pension funds and non-profit endowments are cutting back their exposure to leveraged buy-out investments. Safe oversees the bulk of China’s $1,600bn in reserves. The new TPG fund, which has not yet closed, has about $17bn in assets.
A Chinese sovereign wealth fund has built up a stake of about £1bn in BP, in a move which has caused a stir within the British government, reports the Daily Telegraph. The fund is understood to have quietly acquired the shares in the market over a period. It has accumulated just under 1% of BP, the UK’s largest company with a market cap of £104bn. A BP spokesman said the company was “aware of the Chinese holding” and “welcomed all shareholders”. The Chinese fund has also built up a stake in France’s oil giant Total worth about £1bn, the Telegraph added. The FT reported April 4 that the fund that acquired the Total stake is China’s State Administration of Foreign Exchange, or Safe. The Kuwait Investment Authority is among several other sovereign funds to also hold shares in BP, the report added.
No so much FILTH, as failed in Washington, try Paris.
China’s attempts to get a stake in energy related assets (or indeed any other assets) in the US, have generally been met with dismay by policymakers and an knee-jerk outbreak of economic patriotism. Read more
The body that manages the bulk of China’s $1,650bn in forex reserves has bought a 1.6% stake in France’s Total, in a sign of its aggressive investment strategy. China’s State Administration of Foreign Exchange, or Safe, which operates under China’s central bank, began building its stake, valued at €1.8bn ($2.8bn), several months ago – and did so with Total’s full knowledge, said sources close to the company. The news is likely to revive debate over economic patriotism in France, while in China, it will heighten tensions between Safe and CIC, the SWF established last September. See also FT.com’s in-depth report on SWFs.
A secretive subsidiary of China’s State Administration of Foreign Exchange, manager of the world’s largest forex reserves, has bought stakes in three of Australia’s largest banks, raising fresh questions about transparency of China’s sovereign wealth investments in international markets. Australia and New Zealand Bank and Commonwealth Bank of Australia said Hong Kong-registered SAFE Investment Co had bought stakes of less than 1% in each of the banks. An entity with the same name is understood to have taken a stake of about 0.3% in National Australia Bank. The investments were made in the past two months and built up over several weeks so as not to move the banks’ share prices or trigger any mandatory disclosure requirements, according to an internal report by one of the Australian banks. A banker familiar with SAFE Investment’s activities said the firm had also been looking at similar under-the-radar investments in London. SAFE denied knowledge of the Australian bank investments or any investments in London-listed companies, although a senior official said that if any such investments existed, they would be “good for the country”.