China May Only Have Enough Cash for 6 to 18 Month Defense of the Yuan; Sovereign Wealth Invested in Depreciating Resource Bets

BI: The force field protecting China's economy isn't as strong as you think
When she wrote the note last month, Chu posited that the government only has around $667 billion in excess foreign-exchange reserves to toss around, out of $3.6 trillion.

She calculated that by factoring in precautionary cash requirements the government needs to keep on hand, as well as almost $900 billion in illiquid assets, that it can't access immediately.

Those illiquid assets mostly consist of investments in things like natural resources and the Asian Infrastructure Investment Bank.
What's the writeoff on those investments? Reminds me of Liu Junluo's hyperbolic warning:
In early 2010, I suggested that the policeman of the world, USA, was preparing to exit, and all over the world, in every region, would be large scale unrest. Along with the "Arab Spring" approaching epilogue, Chinese investment in the Arab region sinks into disaster, and we'll soon see China's African investments similarly fall into catastrophe. The losses will be $500 billion or $800 billion, only God knows.

In Putting A Price on Yuan Depreciation; Analyst Reserve Forecasts Imply Depreciation of 2% to 10%, one of the analyst forecasts for year-end reserves is $3 trillion. By that estimate and Chu's, China has about 6 months of liquid reserves left. That's your extreme estimate. Other estimates have China spending about $40 billion a month on yuan defense. If that trend kept up, they have about 17 months assuming no other reserve outflows.
"The risk is that depreciation triggers capital flight, dealing a blow to the stability of China’s financial system. Our calculation is that a 1% yuan depreciation against the dollar triggers about $40 billion in capital flight," Bloomberg economist Tom Orlik wrote in a recent note.
It is not hard to see how this gets out of hand rather quickly.

Balding has even more of the reserves spoken for:
Professor Christopher Balding, a political economist at Peking University, pointed out that the China Investment Corporation actually borrowed most of its capital from the PBOC in the form of USD bonds.

"I don't know the specific amount, but it is probably fair to say that that compromises almost 20-25% of the PBOC reserves," he said.

...Balding put it to us like this: "If you believe that US Treasuries are less than completely liquid, you are probably almost at 50% of the PBOC reserves being less than completely liquid," he wrote in an email to Business Insider.

"What I mean by the Chinese [US] Treasury holdings is this: a) If China is just going to sell USD cash to prevent RMB from falling, they can sell USD cash really anywhere in the world. However, b) if they want to sell their US Treasuries in any significant amount, they have to sell the Treasuries to obtain the USD cash and then sell USD cash to maintain [the yuan]."
How many people are on the right side of rapidly rising U.S. bond yields and a rapidly appreciating U.S. dollar?

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