Foreign-exchange reserves of China

[13] China's large foreign exchange reserves provide the state with capacity to influence financial markets without the necessity of administrative directives.

[14]: 60  The size of its reserves also have a symbolic function as a demonstration of China's growing economic strength and the political legitimacy of the Communist Party.

[14]: 60 At the conclusion of the Chinese Civil War, the defeated Nationalists stripped China of liquid assets including gold, silver, and the country's dollar reserves as they retreated to Taiwan.

[14]: 12  China therefore tightened controls over foreign exchange and capital flows, including by making violations of these regulations punishable as criminal offenses.

[14]: 58 The volatility of the 2007–2008 financial crisis prompted Chinese policymakers, academics, and state-owned enterprise executives to begin evaluating whether China was overexposed to US treasury securities.

[14]: 61–62  Following the 2007–2008 financial crisis, the Communist Party and the public sentiment generally agreed that investing so much of China's foreign exchange reserves in the US government's debt was untenable.

[14]: 70  This in turn empowered those policy banks to make significant loans in Eurasia, Latin America, Africa, and the Middle East.

[14]: 203  Yu also notes that the dollar is depreciating in real terms because of the US's rising national debt and the US Federal Reserve's expansionary monetary policy.

"[14]: 203  Accordingly, Yu favors moving China's foreign exchange reserves away from dollar-denominated assets and instead invest increasingly in raw energy and materials.

[14]: 203–204 Many American and other economic analysts have expressed concern on account of China's "extensive" holdings of United States government debt as part of its reserves.