China’s Offshore Investment Portfolio

China added much less reserves last year via global investments, underlining an improvement in the country’s portfolio of offshore financial assets.

The State Administration of Foreign Exchange said on Monday that only 30 percent of the newly added offshore financial assets last year were in the form of reserves, much lower than the average level of 65 percent seen since 2004.

The country’s total reserve assets stood at $3,387.9 billion at the end of 2012, according to the nation’s balance sheet of foreign exchange assets and liabilities, also known as the international investment position. The figure accounts for 65 percent of China’s total offshore financial assets. The proportion is the lowest since 2008.

The drop in reserve assets is favorable for China, which finds it hard to manage its huge reserves. Having a big pool of reserve assets subjects China to money-printing moves by the United States, for instance, and leads to inflation under China’s current foreign exchange regime.

The administration said in a statement on its website that emerging countries, including China, tend to hold more reserve assets than developed countries, which like to make more securities investments and direct investments.

India holds 73 percent of its total offshore financial assets in reserves, while the Republic of Korea, Russia and Brazil all have a proportion above 40 percent.

China’s net offshore financial assets increased 3 percent over the last year to stand at $1,736.4 billion at the end of 2012.

The international investment position sheet is complemented by the balance of payments sheet and reflects a country’s international payments record.

China’s balance of payments sheet also improved last year, with an account surplus of $213.8 billion and a capital account deficit of $117.3 billion. Many economists believe that China’s international payment situation is nearing equilibrium.

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