Top Traders Unplugged

IL21: How China Manages Their FX Reserves ft. Zongyuan Zoe Liu

Sep 20, 2023
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Zongyuan Zoe Liu
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ANECDOTE

Recapitalizing Banks via FX Reserves

  • China first leveraged its foreign exchange reserves to recapitalize troubled state-owned banks through Central Huizhin in 2003.
  • This move successfully stabilized the banks and paved the way for their public listings later on.
INSIGHT

CIC Leverages FX Reserves

  • China Investment Corporation (CIC) was created using bond proceeds to buy foreign exchange reserves.
  • This structurally leveraged capital allowed CIC to invest in higher-return, riskier assets than traditional reserves.
INSIGHT

CIC's Early Risky Investments

  • CIC's early investment strategy involved high-profile but risky moves like a pre-IPO purchase of Blackstone just before the Global Financial Crisis.
  • This highlighted the steep learning curve and financial risks for China’s sovereign leveraged funds.
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