It is always tempting to imagine the managers of China's reserves cackling in the counting house, devising ways to boost or destabilise a particular region. But the reality is a lot more prosaic, and more passive.
Sure, the reserves division of the State Administration of Foreign Exchange has a lot to play with. Managers were sitting on $2,447bn at the end of March, or 31 per cent of the world's non-gold reserve assets – a bigger share than the next five nations put together. And yes, there are elements of active management: witness the growing allocations to CIC, the main sovereign wealth fund, and more direct lending from Safe itself, such as the $60bn of loan-for-oil swaps within the past year. But the basic composition of reserves is a function of trade surpluses, foreign direct investment, speculative inflows and non-renminbi borrowings by Chinese corporates, over all of which Safe has little if any control.
Any attempt to rebalance assets in any direction carries big risks. While there may be valid reasons for China to fear losses on its euro holdings, for example, any sell-off will only add to the region's problems. As Royal Bank of Scotland notes, why would China risk upsetting the European Union, a major trading partner and important counterweight to US influence?