External and internal factors of international reserve management in China

This study focuses on the management of international reserves in China, one of the global leaders in reserve volumes. China actively employs its reserves not only to mitigate the adverse effects of external shocks on its balance of payments, exchange rate, and overall economy, as is customary in global practices, but also to stimulate socio-­economic development, expand access to external markets and advanced technologies, and enhance the position of the Chinese economy within the global economic system. The study aims to analyze the mechanism of international reserve utilization in China and identify key factors shaping this mechanism over the past 15 years. The results indicate that China’s international reserves are intrinsically linked to its export-­oriented economy. Key influencing factors include fluctuations in export growth, shifts in external demand, the implementation of the “dual circulation” strategy since the early 2010s, and the recently introduced “socialist modernization” strategy. The implementation of this strategy encountered a number of challenges discussed in the study, therefore export still plays a decisive role in building international reserves and ensuring the growth of the Chinese economy. Faced with declining external demand and slower export growth, China introduced the “dual circulation” concept to partially rely on domestic demand. However, challenges in its implementation have kept exports central to the accumulation of reserves and economic growth. Amid escalating global challenges and sanctions pressure, China has intensified efforts to improve economic efficiency, culminating in the introduction of the “socialist modernization” strategy in 2023. Based on an analysis of these factors and the decisions of the Third Plenary Session of the 20th Central Committee of the Communist Party of China, this study evaluates China’s medium-­term strategies for managing international reserves.