Mystery of China’s Huge Dollar Surplus Baffles World Markets

 Mystery of China’s Huge Dollar Surplus Baffles World Markets

(Bloomberg) — Unprecedented trade surpluses and record inflows into its bond market are giving China a stockpile of dollars unseen since the days when the ‘Asian savings glut’ was blamed for keeping U.S. interest rates excessively low and fueling the sub-prime mortgage crisis.

Most Read from Bloomberg

But unlike then, when China aggressively recycled its dollar holdings into U.S. Treasuries, China’s giant pile of foreign exchange reserves are holding broadly stable. That means the dollars are being funneled somewhere else, but exactly where is proving to be a bit of a mystery.

While some of that flood of greenbacks is ending up as deposits at Chinese banks, the large ‘errors and omissions’ in the nation’s balance of payments is muddying the picture. What is clear is that the dollars offer China an important cushion against any future shocks in the world economy, even as individual companies like China Evergrande Group…

Read full article…finance.yahoo.com