The arm of Chinese government that manages foreign-exchange reserves has just released its count of where they stood at the end of August, which is down by nearly $94b from the end of July. Here’s Bloomberg and here’s the Chinese data.
And the actual pace at which China is spending reserves was even faster than that. The dollar significantly weakened during August: the DXY index fell by 1.6%. That should have increased the dollar value of China’s FX reserves, by nearly $20b if about one-third of them were in non-dollar assets. So it looks like China actually spent at least $110b of reserves in August.
Since China is so big, and has such a big stockpile of FX reserves, $110b in a month might seem like not such a big number. It is. China’s GDP was about $10.6 trillion in the four quarters ending in June, or a bit less than $900b in an average month. That means that in August China spent down its FX reserves at a pace of around 12% of GDP. That’s a very big volume of demand for foreign currency that’s not being met by market sellers.
By comparison, Russia spent $31b of FX reserves in December 2014 at the peak of its selling, a pace of about 17% of its (pre-devaluation) GDP. The ruble ended up losing half its value.
Obviously such comparisons aren’t direct, and Russia is in a much worse situation. But a devaluation of more than 10% in China seems to be the most likely outcome now.
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