By almost all measures, China’s $3.3 trillion foreign reserves, the world’s largest, look formidable. Except one.
Compared with the amount of yuan sloshing around in the economy, a proxy for potential capital outflows, China’s firepower seems limited. The dollar reserves account for 15.5 percent of M2, a broad measure of money in circulation. That’s the lowest since 2004 and is less than levels in most Asian economies including Thailand, Singapore, Taiwan, Philippines and Malaysia, according to data compiled by Bloomberg.
That is from Ye Xie. Please do note all of the caveats and qualifiers in the longer piece. The claim is not that Chinese reserves are currently in some kind of crisis situation, only that we should not overestimate their import, relative to potential and indeed actual capital outflows.