China forex: China's $2.4 trillion pile of foreign reserves is one of the financial landmarks that most vexes economists and politicians. Now the agency that manages it has decided to give the world a peep at what it is made of, and shed some light on the question of how much hot money is flowing in and out of China's economy.
Transparency it isn't, but it is at least a good start.
Every month the size of the forex mountain is reported by the State Administration of Foreign Exchange (Safe). Economists then start crunching numbers to decide how much of the increase came from "hot" speculative inflows, betting on a rise in the value of China's pegged currency. It is an imperfect science. Money that came from trade is easy enough to identify. Ditto foreign investment. After that things get murky.
The big change is that Safe will now reveal on a quarterly basis the effect of foreign currency and asset price movements. Previously, inquiring minds could only guess. This means that whatever is left, more or less, is hot. Last year, it looks like the rogue inflows were somewhere in the region of $60 billion.
Most of that probably isn't even foreigners bringing capital into China. Rather it seems to be mainly Chinese banks repatriating funds and reducing portfolio investments outside China. The banks have also been able to access some foreign currency previously blocked by the central bank -- and that too may have been converted back to yuan. Of course, one interpretation of that is that even China's banks are keen to go long China's currency and short everyone else's when they spy a chance.
It is easy to see why policymakers might like markets to take a cooler head on hot money. If investors think the hot money problem is bigger than it really is, they might pile in too, worsening the problem.
But it's a shame Safe has stopped short of the figure that would really set minds at rest: how much of the reserve pile is really held in U.S. dollars. For that kind of insight into the $2.4 trillion hoard, China-watchers can only dream.