Hi there Alan
We know that up until 11 August the Bank of China was selling US dollars and buying CNY to hold up the value of the CNY. So where did they get the US dollars?
Lots of people have been saying that they have been selling US treasuries, but I am not convinced.
It is difficult to know exactly what has been going on during the last couple of months because of the delays in the release of information. According to the US Treasury numbers up to June, there is no obvious sell off of US Treasuries by the Chinese:
http://www.treasury.gov/ticdata/Publish/mfh.txt
They may have been selling since then, but based on price movements in US treasuries, any Chinese selling of US Treasuries is not having much impact.
It is possible that the Chinese are selling other US dollar denominated assets.
At December 2014, 44.1% of CIC investments were in "Public Equities":
http://www.china-inv.cn/wps/portal/...O7WT25Q2GnfhK6zc/dl5/d5/L2dBISEvZ0FBIS9nQSEh/
I haven't dug deep enough to find out what portion of that is US dollar denominated. Is it possible that Chinese selling of US equities triggered the sell offs in June and August? There is one for the conspiracy theorists.
To be honest, I am not losing a lot of sleep over China's economic problems. The recent shake out they triggered has provided opportunities for which I am very grateful.
Cheers
(20min delay)
