China's International Reserves Cost-benefit Analysis And Measurement

China's economic performance in the international economic crisis are amazed: in experienced several severe natural disasters, the spread of the international financial crisis and continued in the international market prices of primary products such as a significant decline in the grim situation, the 2008 gross domestic product (GDP) of 30.067 trillion yuan, up 9% compared with 2007,2009, real GDP in the third quarter compared to last year rose 8.9%, the World Bank in October 2009 the projections released into the Chinese economy in 2009 economic growth rate increased to 8.4%, far higher than the OECD countries, the initial indications are the first of China's economic recovery.Because China has more than ten years of the "double surplus", foreign exchange reserves reached a record high of nearly two trillion U.S. dollars at the end of 2008. The current economic situation in the United States needs China's capital, while China is unlikely to sell the dollar in the international market to reduce the dollar reserves. On the other hand, we also see in China's exchange rate reform in 2005, China was in addition to the international market, other than the euro are the main currency appreciation, according to estimates, China's real exchange rate from 2005 to the end of 2008 has appreciated by 15% above.The one hand, increasing China's international reserves, on the other is the increasing appreciation of the yuan. Then there is a problem from occurring: If China's international reserves are foreign currency holdings, then the renminbi-denominated international reserves there will be losses, that is what we explored in the text changes in exchange rates or asset price movements caused by the loss of assets, that is, valuation effects.China's State Administration of Foreign Exchange in the statistics, and did not disclose the proportion of China's currency reserves, so we, can only estimate of China's currency other materials in the international assets ratio. According to estimates, China's international assets, approximately 65% of the billion dollars in assets,25% of euro denominated assets and 10% of the Japanese yen and the pound sterling and other currencies of other countries assets. The proportion of these assets are different currencies relative rates of change in the renminbi is not the same, which determines China's international assets, can not maintain a dynamic and static, that is, due to exchange rate movements, China's international assets may be subject to the attacks. In China's international assets, there are two factors that determine its assets are relatively large impact of exchange rate changes:First, China's international assets in the possession of the absolute percentage of dollar-denominated assets, and second, the renminbi against the U.S. dollar lower, a larger appreciation of the RMB.A clear of this issue, we began with a theoretical framework of analysis to determine the-problem. The current account surplus reflects the same amount of its net assets in foreign countries increased, while the current account deficit reflects the same amount of its net assets in foreign countries decrease. In the traditional economic theory analysis, we believe that the changes in net international asset position is equal to the accumulation of current account balances. However, in practice, the two are not equal. One reason is that the assets of unrealized gains (losses) is not in the current project can be reflected. The theory that measure unreflected capital gains(losses) is the VALUATION EFFECTS.