China’s cash pile provides no shield - By Edward Chancellor

China sits on the world’s largest foreign exchange reserves. Many people view Beijing’s $3tn cash pile as providing economic insurance for years to come. From this perspective, the fact that China has just produced its first quarterly balance of payments deficit since 1998 looks inconsequential. After all, the $12bn deficit is a rounding error compared to the massive reserves.

In fact, China’s forex reserves are vulnerable on several fronts. And if the balance of payments deteriorates rapidly, the dysfunctional Chinese banking system will come under increasing pressure.