Fact Check
How China's forex reserves help mitigate risks
By Lan Xinzhen  ·  2025-04-21  ·   Source: NO.11 MARCH 14, 2024

China's foreign exchange (forex) reserves­—a stockpile of foreign currencies and other liquid assets—reached 3.24 trillion yuan ($450 billion) in late March, up by $13.4 billion, or 0.42 percent, from the end of February, the State Administration of Foreign Exchange announced on April 7. This was the third consecutive month of growth, reflecting the Chinese economy's underlying stability and sustained recovery, as well as progress in high-quality, innovation-driven development.

The uptick comes amid a volatile global economic landscape. Rising unilateralism, specifically the U.S. administration's aggressive use of tariffs as a coercive tool, has disrupted international trade and rattled capital markets, fueling fears of a global recession. Against this backdrop, the continuous growth of China's forex reserves is a positive signal, bolstering confidence in the country's ability to navigate external pressures and support global economic stability.

China is the world's second largest economy and an important force in safeguarding multilateral trade. The sustained and steady growth of its forex reserves echoes the sound fundamentals of the economy and will increase international confidence in the steady growth of the Chinese economy. In the meantime, forex reserve growth will help stabilize the renminbi (RMB) exchange rate and enhance market confidence in the currency, which will both benefit the foreign trade and investment of Chinese enterprises, as well as provide a more stable investment environment for international investors.

China's ample forex reserves ensure its strong international payment capacity, enabling seamless trade and supporting domestic enterprises in overseas investments. This financial strength underpins China's critical role in stabilizing global industrial and supply chains.

Amid growing volatility in the multilateral trade system, the international community urgently needs a reliable anchor—and China's robust forex reserves offer precisely that. As the world's largest trader in goods, China possesses not only the capacity but also the confidence to uphold multilateral trade.

The steady growth of these reserves enhances China's ability to mitigate external economic and financial risks. In an increasingly turbulent global financial landscape, sufficient reserves provide greater policy flexibility, safeguarding domestic economic stability while delivering positive spillover effects for the world economy.

The increase in the country's forex reserves also provides financial support for its economic transformation and upgrading, and facilitates the expansion of domestic demand. The country can use its forex reserves to purchase foreign technologies and equipment, so as to promote the transformation of traditional industries into high-end manufacturing and hi-tech industries. 

The expansion of forex reserves typically reflects a widening trade surplus and rising export demand. This growth requires production scale-up across export-oriented industries, in turn generating more employment opportunities in the manufacturing, logistics and related sectors.

However, reserve accumulation also presents macroeconomic management challenges. For example, inflows of foreign currency expand the domestic money supply, potentially causing excess liquidity and inflationary pressures. While reserves can fund industrial upgrading, traditional labor-intensive industries may face disruption during transition periods.

Rising forex reserves also intensify appreciation pressure on the RMB, which could erode the price competitiveness of Chinese exports and compress profit margins for export-dependent firms.

China is now steadily advancing institutional opening up in its forex sector, intensifying efforts to prevent and defuse external risks while maintaining fundamental equilibrium in its balance of payments. Whereas unilateralism continues to pose pressures, China's growing forex reserves remain well within manageable levels, with any potential negative effects being effectively controllable.

Copyedited by Elsbeth van Paridon 

Comments to lanxinzhen@cicgamericas.com 

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