Is China Losing Its Appetite for External Surpluses?

After years of piling up huge foreign exchange reserves, China is increasingly seen by many analysts as entering a new phase. These analysts, who have been examining new data on China’s official holdings of foreign exchange reserves, have concluded that China is now experiencing substantial capital outflows and that Chinese reserve growth has essentially stopped. The Wall Street Journal has gone so far as to state that the outflows are so massive that Chinese authorities are “in the unusual position of having to rebuild market confidence in the strength of one of the sturdiest Asian currencies.” For the United States, according to the analysts, the implication is that since China’s external surplus is no longer growing, China’s purchases of US securities will slow dramatically.