A relatively recent post (early October) by the lovely people at the Council on Foreign Relations: China Isn't Shifting Away From the Dollar or Dollar Bonds.

Strange as it may seem, the best evidence available suggests that the dollar share in China’s reserves has been broadly stable since 2015 (if not a bit before). If a simple adjustment is made for Treasuries held by offshore custodians like Belgium's Euroclear, China’s reported holdings of U.S. assets look to be basically stable at between $1.8 and $1.9 trillion. After netting out China's substantial holdings of U.S. equities, China's holdings of U.S. bonds, after adjusting for China's suspected Euroclear custodial account, have consistently been around 50 percent of China's reported reserves. Nothing all that surprising.

The bulk of China’s post-2012 efforts to diversify its reserves have come not from shifting reserves out of the dollar, but rather by using what could have been reserves to support the Belt and Road and the outward expansion of Chinese firms (see Box 6 of SAFE's annual report, or my June blog). Those non-reserve foreign assets, strangely enough, seem to be mostly in dollars; almost all the documented Belt and Road project loans, for example, have been in dollars.

You can read through the piece for the nitty gritty, but I'm just going to skip right to the end:

Bottom line: the only interesting evolution in China’s reserves in the past six years has been the shift into Agencies. That has resulted in a small reduction in China’s Treasury holdings – but it also shows that it is a mistake to equate a reduction in China’s Treasury holdings with a reduction in the share of China’s reserves held in U.S. bonds or the U.S. dollar.

I don't really have the knowledge or expertise to say if they're right, wrong, or missing the point entirely, so I guess I'm just throwing this out there as a "so what do you all think?" kinda thing.

They mention an article in The China Project, which revealed it was shutting down a couple weeks ago: Shadow reserves — how China hides trillions of dollars of hard currency

But a funny thing happened sometime over the last ten years: China’s reserves stopped rising. Sure, the number reported by the foreign exchange authorities bounces around a bit, as the market value of China’s long-term bonds and euros sambas with global markets. But the foreign exchange reserves reported by the central bank (the People’s Bank of China or PBoC), which accounts for its reserves on its balance sheet at their historical purchase price, has been constant.

The stability of China’s reported reserves is a real puzzle. Despite all the talk of deglobalization, China’s export surplus is actually at an all time high. China’s true current account surplus is likely larger than the $400 billion that China now officially reports. And currency traders know that China’s currency bounces around a lot less than other big currencies — the yuan doesn’t act like a currency that is tightly pegged to the dollar anymore, but it doesn’t act like a freely floating currency either.

Just as China has “shadow banks” — financial institutions that act like banks and take the kind of risks that a bank might normally take but aren’t regulated like banks — China has might be called “shadow reserves.” Not everything that China does in the market now shows up in the PBoC’s balance sheet.

...

So, while exchange reserves may seemingly be of interest only to economists, their management and use can have enormous real-world effects. They are powerful enough of an economic force such that an entire, global, decades-long infrastructure plan was, in some ways, just a side effect of a 2009 decision to find new ways to manage China’s foreign exchange.

...

All told, institutions that report to China’s central government probably have closer to $6 trillion in foreign assets than the $3.12 trillion SAFE reported in December 2022.

@Kaplya@hexbear.net

I'm curious what you think, as this seems to vibe with your analysis of the situation. If they possess all these dollars, why not do mass debt forgiveness? Do they fear a military response?