Ebbs and flows

13 July 2010 By John Foley Follow @johnsfoley

Undervalued currencies tend to attract speculative funds. Yet none came China’s way over the last three months. Foreign investors may be more risk averse, or deterred by Beijing’s antispeculator policies. But some wealthy Chinese could also be looking for safe haven insurance.

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China's foreign currency reserves grew by 0.3 percent from the end of March to the end of June, their smallest incremental change in eleven years. The total at the end of the quarter was $2.5 trillion.

The change in reserves reflects currency from trade and officially sanctioned investment, along with income from foreign currency investments, and any changes caused by exchangerate gains or losses.

The composition of China's reserves is not disclosed to the market, though it is widely held that around twothirds of the funds are held in U.S. dollardenominated assets. China bought 735 billion yen in Japanese government bonds in May, doubling its purchases for the year.

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