How Chinese banks use their offshore dollars
Chinese banks have a significant amount of USD assets. The top four state banks have close to $1 trillion in USD assets and almost $400 billion in USD investments. These dollar assets are held on the balance sheet of the corporate headquarters in China, in addition to the branch offices in the United States, Europe and elsewhere. The Chinese government indirectly (and sometimes directly) is able to influence the use of this capital. Apart from the banks, there are also dollar assets of Chinese corporates.
The ability of the Chinese government to control externally held dollars ‒ outside of the central bank’s own portfolio ‒ has a number of consequences for global capital flows:
1. China’s foreign exchange can be more easily controlled by means of management of forex assets through state proxies.
2. How and where these dollars are held makes a difference to the role of Hong Kong as a financial center.
3. In some cases, dollar bonds issued by Chinese corporates may in fact be held by other Chinese institutions. This domestic cross-ownership of US dollars affects the nature of the linkages between the Chinese economy, international capital flows, and indirectly, the domestic economies of other countries.
We look at the available data on the Chinese ownership of offshore USD bank assets.
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