China’s Forex Reserves Hold Steady at $3.416 Trillion
China’s foreign exchange reserves totaled $3.4163 trillion at the end of June 2026, according to data released by the State Administration of Foreign Exchange (SAFE) on July 7. The figure represents a modest decline of $26 billion, or 0.75%, from May’s level of $3.4422 trillion, which had been the highest since November 2015.
Despite the month-over-month dip, China continues to hold the world’s largest foreign exchange reserves, maintaining its position above the $3.3 trillion threshold for the 11th consecutive month.
What Drove the Decline?
SAFE attributed the decrease primarily to external factors, noting that “the combined effect of exchange rate conversion and asset price changes led to a decline in the scale of foreign exchange reserves for the month.” The People’s Daily reported that the US Dollar Index rose by more than 2% in June, driven by expectations of continued tight monetary policy from the Federal Reserve.
This dollar strength caused major non-US currencies — including the euro, Japanese yen, and British pound — to depreciate significantly. When non-dollar assets held in China’s reserve portfolio were converted to US dollar valuations, corresponding book exchange losses were incurred.
“The decline in China’s foreign exchange reserves in June was mainly due to book valuation losses from exchange rate conversion,” said Zhao Qingming, Vice President of the Hui Guan Research Institute, as cited by the Xinhua Economic Reference. “When non-US dollar assets in China’s foreign exchange reserves were converted into US dollar valuations, corresponding book exchange losses were formed.”
Pang Ming, a member of the China Chief Economist Forum, added that “global financial asset performance was divergent, and adjustments in some commodity and gold prices also weakened reserve asset performance. Essentially, this is an objective reflection of the foreign exchange reserve investment portfolio amidst global financial market fluctuations.”
A Valuation Issue, Not Capital Flight
Crucially, economists across multiple institutions agree that the decline represents a book valuation effect rather than a fundamental capital outflow problem. The strengthening dollar meant that non-dollar assets were worth less when measured in USD terms — a “paper loss” rather than actual capital leaving the country.
SAFE itself struck a confident tone, stating that “China’s economy is generally stable, developing towards new and high-quality growth, which is conducive to maintaining basic stability in the scale of foreign exchange reserves.”
Outlook: Stability Ahead
Looking forward, analysts project that China’s forex reserves will remain broadly stable around the $3 trillion mark in the medium term.
“By different standards, China’s current foreign exchange reserve scale of over $3.4 trillion is in a relatively ample state,” said Wang Qing, Chief Macro Analyst at Dongfang Jincheng. “Considering various factors, the future scale of foreign exchange reserves is expected to remain basically stable around the $3 trillion mark.”
Several structural factors support this outlook. Wen Bin, Chief Economist at China Minsheng Bank, highlighted that “the global AI capital expenditure cycle continues, with strong overseas procurement demand for chips, servers, and related supporting facilities, continuously driving external demand expansion.” He also noted that China’s diversification of foreign trade markets is “effectively hedging against the impact of a single economy.”
On the policy front, June saw an intensification of measures to stabilize foreign investment and open up the financial sector. The Ministry of Commerce and two other departments jointly issued the “Action Plan for Utilizing Foreign Investment to Consolidate Stability and Promote Excellence,” while the People’s Bank of China announced pilot programs for offshore RMB foreign exchange transactions — moves designed to enhance the convenience for foreign institutions to increase holdings of RMB bonds and equities.
Risk Factors to Watch
Pang Ming cautioned that the scale of foreign exchange reserves will continue to be affected by global financial market fluctuations, major central bank policy adjustments, and geopolitical risks. However, he expressed confidence that “with the continuous penetration of macro policy effects and the continuous strengthening of trade competitiveness brought about by industrial digitalization and intelligence, China’s international balance of payments will remain generally balanced.”
Historical Context
China has maintained the world’s largest foreign exchange reserves since surpassing Japan in 2006. Reserves peaked at nearly $4 trillion in 2014 before declining due to capital outflows and exchange rate management. They have remained above the $3 trillion threshold since 2017 — a level widely considered a safe minimum for the world’s second-largest economy.
What to Watch Next
Markets will be monitoring the July data release for signs of whether the June decline was a one-off adjustment or the beginning of a trend. Key factors to watch include the trajectory of the US Dollar Index, the Federal Reserve’s policy stance, and the effectiveness of China’s recent financial opening measures in attracting foreign capital inflows.