Yu Yongding: China's overseas asset-liability structure needs to be adjusted to deal with new changes in the international monetary system


2022-05-14: [Chinese Article Link] BEIJING, May 14 (Wenwen Liu) -- Yu Yongding, a member of the Chinese Academy of Social Sciences and a researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said on May 14 while attending the 2022 Tsinghua Wudaokou Chief Economist Forum that it is recommended to consider adjusting the structure of China's overseas assets to balance China's balance of payments and cope with the new changes in the international monetary system.   Yu Yongding mentioned that for a long time, China has accumulated over trillion in reserves through its current account surplus and capital account surplus, exceeding the requirement of foreign exchange reserve adequacy ratio.   However, the rate of return on foreign exchange reserves is extremely low, and the proportion of foreign exchange reserves in overseas assets is too high; a large part of foreign exchange reserves are "borrowed" rather than "earned", so the financing cost of part of the foreign reserves is very high.   Because of this, he said, China has negative investment returns despite having trillion in net assets abroad. This is in stark contrast to the United States.   Regarding the U.S. practice of freezing Russian foreign exchange reserves in the Russia-Ukraine conflict, Yu Yongding believes that this move has seriously damaged the credit of the United States, and the status of the U.S. dollar as an international reserve currency has been further hit hard, which also deserves China's vigilance.   To this end, Yu Yongding points out that China's overseas asset and liability structure needs to be adjusted. First, in order to improve the net return of overseas investment and reduce the proportion of foreign exchange reserves in China's overseas assets; second, in order to improve the safety of China's overseas assets, especially foreign exchange reserves.   In his view, China's overseas assets can be divided into two parts: stock and flow. For the existing stock of overseas assets, consideration can be given to reducing holdings of U.S. Treasuries, increasing holdings of other forms of assets and increasing investments in strategic resource-producing countries.   In addition, it is important to strictly protect foreign investors' investments in China, as well as to improve the security of overseas assets with IT, digital currency and other technological means.   "For stocks, many things are difficult to adjust in a short period of time, but on the flow side, there is a lot that can be done for quite a long time to come." He said.   In Yu's view, eight types of policies can be considered to adjust the flow of overseas assets, including expansionary fiscal and monetary policies to stimulate domestic demand to drive imports; abolishing as soon as possible the export tax rebate policy implemented in the past to encourage exports; increasing imports of bulk commodities and strategic materials; buying fewer U.S. Treasuries and importing more U.S. products; maintaining a trade deficit for a specific period; implementing a floating exchange rate policy; increasing forms of overseas investment; and playing to China's advantages in infrastructure investment, but beware of the debt trap, etc. (End)


Note: This is a machine translated version of the Chinese news media article. A mature and nuanced reading is suggested.



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Yu Yongding: China's overseas asset-liability structure needs to be adjusted to deal with new changes in the international monetary system


2022-05-14: [Article Link] BEIJING, May 14 (Wenwen Liu) -- Yu Yongding, a member of the Chinese Academy of Social Sciences and a researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said on May 14 while attending the 2022 Tsinghua Wudaokou Chief Economist Forum that it is recommended to consider adjusting the structure of China's overseas assets to balance China's balance of payments and cope with the new changes in the international monetary system.   Yu Yongding mentioned that for a long time, China has accumulated over trillion in reserves through its current account surplus and capital account surplus, exceeding the requirement of foreign exchange reserve adequacy ratio.   However, the rate of return on foreign exchange reserves is extremely low, and the proportion of foreign exchange reserves in overseas assets is too high; a large part of foreign exchange reserves are "borrowed" rather than "earned", so the financing cost of part of the foreign reserves is very high.   Because of this, he said, China has negative investment returns despite having trillion in net assets abroad. This is in stark contrast to the United States.   Regarding the U.S. practice of freezing Russian foreign exchange reserves in the Russia-Ukraine conflict, Yu Yongding believes that this move has seriously damaged the credit of the United States, and the status of the U.S. dollar as an international reserve currency has been further hit hard, which also deserves China's vigilance.   To this end, Yu Yongding points out that China's overseas asset and liability structure needs to be adjusted. First, in order to improve the net return of overseas investment and reduce the proportion of foreign exchange reserves in China's overseas assets; second, in order to improve the safety of China's overseas assets, especially foreign exchange reserves.   In his view, China's overseas assets can be divided into two parts: stock and flow. For the existing stock of overseas assets, consideration can be given to reducing holdings of U.S. Treasuries, increasing holdings of other forms of assets and increasing investments in strategic resource-producing countries.   In addition, it is important to strictly protect foreign investors' investments in China, as well as to improve the security of overseas assets with IT, digital currency and other technological means.   "For stocks, many things are difficult to adjust in a short period of time, but on the flow side, there is a lot that can be done for quite a long time to come." He said.   In Yu's view, eight types of policies can be considered to adjust the flow of overseas assets, including expansionary fiscal and monetary policies to stimulate domestic demand to drive imports; abolishing as soon as possible the export tax rebate policy implemented in the past to encourage exports; increasing imports of bulk commodities and strategic materials; buying fewer U.S. Treasuries and importing more U.S. products; maintaining a trade deficit for a specific period; implementing a floating exchange rate policy; increasing forms of overseas investment; and playing to China's advantages in infrastructure investment, but beware of the debt trap, etc. (End)

Note: This is a translated version of the Chinese news media article. A mature and nuanced reading is suggested.

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