How China invests its US$3.2 trillion forex reserves abroad

China’s foreign exchange reserves stood at $3.227 trillion at the end of February, maintaining their position as the world’s largest. Overseeing these vast assets are four offshore investment offices operating under the State Administration of Foreign Exchange (SAFE), referred to as the “four golden flowers” in China.

According to an article by the South China Morning Post which takes a deep-dive into their operations, these offices include SAFE Investment Company in Hong Kong (Hua’an), the Investment Company of The People’s Republic of China (Singapore) (Huaxin), and corresponding units in London (Hua’ou) and New York (Huamei).

A 2014 report from China Forex, a SAFE-affiliated publication, that has been cited by the authors highlighted that these entities have played a role in China’s foreign exchange strategy since the 1990s. Their investments span equities, emerging markets, and diverse asset classes.

“Our overseas offices serve as key platforms for reserve diversification, creating a global network that integrates markets, intelligence, and personnel,” the report stated. “This has strengthened investment management across different time zones and regions.”

As geopolitical tensions have intensified, China has adjusted the composition of its foreign currency holdings. According to Yahoo Finance, the US dollar accounted for 55% of China’s FX reserves in 2019, compared to a global average of 61 per cent. SAFE reports indicate that the ratio stood at 65% in 2010, signaling a strategic shift toward greater diversification.

The Hong Kong office was the first of these entities to be established in June 1997, just before Hong Kong’s return to Chinese sovereignty. It marked the beginning of SAFE’s strategy to optimize reserves and maximize returns. Its name, Hua’an, symbolizes national stability and prosperity.

The unit gained renewed attention in January, days before Donald Trump’s formal return to the White House, when Pan Gongsheng, governor of the People’s Bank of China (PBOC), announced plans to “significantly increase” reserve allocations to Hong Kong.

The announcement triggered speculation among analysts, academics, and lawmakers, who questioned the timing, rationale, and potential scale of this financial shift.

SAFE, a subsidiary of the PBOC and China’s primary FX reserves manager, operates with the objectives of “safety, liquidity, value preservation, and appreciation,” while maintaining long-term sustainability. Since adopting centralized reserve management in 1994, it has consistently emphasized diversification and decentralization.

By Nazrin Sadigova