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The foreign-exchange reserves of China are the People's Republic of China holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than China's national currency (renminbi). In October 2016 China's foreign exchange reserves totaled US$3.12 trillion, the lowest total since 2011, but remained higher than the foreign exchange reserves of any other nation.
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The management of foreign-exchange reserves is governed by the State Administration of Foreign Exchange (SAFE) and the People's Bank of China. The composition of foreign-exchange reserves is a state secret in China.
Size
The nation's foreign exchange reserves are held by China's central bank. The total sum of the reserves is regularly announced by the central bank. At the end of September 2015, the foreign-exchange reserves of China were US$3.51 trillion, while, at the end of January 2016, they stood at US$3.23 trillion. They are the highest among foreign-exchange holdings of nations in the world, ostensibly more than triple the size of any other country’s.
Composition
The exact composition of the foreign-exchange reserves of China is a state secret. Foreign analysts agree that about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars, approximately one-fifth in Euros, and almost all the rest in Japanese Yen and British pounds.
Most of China's foreign-exchange reserves are held in U.S. dollar-denominated financial assets such as U.S. Treasury securities. Since 2008, when it overtook Japan in this respect, China is the largest foreign owner of U.S. Treasury securities, accounting for about 22 percent of all U.S. Treasuries held by non-Americans.
Concerns over Chinese holdings of U.S. Debt
Many American and other economic analysts have expressed concerns on account of the People's Republic of China's "extensive" holdings of United States government debt, as part of their reserves.
The National Defense Authorization Act of the fiscal year 2012 included a provision requiring the Secretary of Defense to conduct a "national security risk assessment of U.S. federal debt held by China." The Department issued its report in July 2012, stating that “attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States. As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options, whether in the diplomatic, military, or economic realms, and this would remain true both in peacetime and in scenarios of crisis or war.”
The 112th United States Congress introduced legislation whose aim was the assessment of the implications of China’s ownership of U.S. debt. The 2013 Report claimed that "[a] potentially serious short-term problem would emerge if China decided to suddenly reduce their liquid U.S. financial assets significantly" [emphasis in the original text], noting also that Federal Reserve System Chairman Ben Bernanke had, in 2007, stated that “because foreign holdings of U.S. Treasury securities represent only a small part of total U.S. credit market debt outstanding, U.S. credit markets should be able to absorb without great difficulty any shift of foreign allocations."
A significant number of economists and analysts dismiss any and all concerns over foreign holdings of United States government debt denominated in U.S. Dollars, including China's holdings.
However, other economists have also argued that it is only China and Japan's willingness to hold US dollars that prevent a shock to the global economy. Therefore, it is arguable that as the Chinese economy gradually shifts from an export based economy into a service economy, their need to hold US dollars in order to strengthen the renminbi will diminish.