The U.S. chip embargo has escalated, China has reduced its holdings of U.S. bonds, can gold reserves be supported?
The U.S. government recently imposed stricter chip export controls on China, aimed at restricting China's access to advanced U.S. artificial intelligence chips and chip-making equipment. These new rules not only prohibit the export of state-of-the-art AI chips to China, but also extend restrictions to consumer electronics such as laptops that contain those chips. China firmly opposes this, believing that the US has generalized the concept of national security, which has brought great uncertainty to the global semiconductor industry. Some believe that the United States aims to contain China's development of advanced chip manufacturing and strengthen its own dominance in this field.
In April 2024, China's foreign exchange reserves amounted to US$3,200.8 billion, down US$44.8 billion, or 1.38%, from the end of March. The foreign exchange bureau said that this was mainly due to the rise in the US dollar index and the decline in the prices of global financial assets. China's economic foundation is solid, which is conducive to maintaining a basic stability in the scale of foreign exchange reserves. Some believe that the decline in foreign exchange reserves reflects the market's reassessment of the Fed's interest rate hike expectations.
In recent years, the United States has been tightening sanctions on China's technology sector, aimed at curbing China's technological development. In 2022, the United States began restricting the export of artificial intelligence chips and chip-making equipment to China. Since then, the United States has repeatedly expanded the scope of these restrictions to include not only advanced chips, but also some consumer electronics.
The reason why the United States has suppressed China's chip industry so severely is mainly due to two considerations. On the one hand, the United States hopes to maintain its absolute superiority in this field through technological blockade and prevent China from catching up and overtaking in key technologies. On the other hand, the United States is also concerned that China is using advanced chips to develop cutting-edge technologies such as artificial intelligence, which will threaten the national security of the United States.
In the face of extreme pressure from the United States, the Chinese government and companies are actively responding. On the one hand, China has stepped up its efforts to innovate independently and strive to break through the bottleneck in the development of key technologies such as chips. On the other hand, China is also looking to obtain the chips and equipment it needs through other channels, such as importing from other countries.
As the U.S. technology blockade becomes more extensive, it is increasingly difficult for China to obtain advanced chips. As a result, China has had to take some other steps to deal with the U.S. crackdown. For example, China has begun to reduce its holdings of US dollar assets such as US Treasuries to reduce its dependence on the US dollar. China is also increasing its holdings of safe-haven assets such as gold to improve the resilience of its foreign exchange reserves.
China continued to increase its holdings of gold reserves, reaching 72.8 million ounces in April, up 60,000 ounces from the previous month, marking the 18th consecutive month of increased gold reserves. According to the person, China's increase in gold holdings aims to optimize and diversify the structure of reserve assets and improve the stability of reserves.
Recently, against the backdrop of geopolitical tensions and economic turmoil, gold has been highly sought after as a safe-haven asset, and prices have continued to rise. Some investors expect gold prices to move further higher if the U.S. economy deteriorates further.
China's increase in gold reserves is mainly due to the following considerations: increasing gold reserves is conducive to diversifying risks and improving the anti-risk ability of foreign exchange reserves. In the context of the current complex global economic situation, holding a certain proportion of gold reserves can provide better value preservation and appreciation functions for foreign exchange reserves.
Increasing the holdings of gold will help promote the internationalisation of the renminbi. As a super-sovereign asset, gold has good hedging properties and hedging functions, and increasing gold reserves can enhance the international credibility of the RMB and create a good environment for the internationalization of the RMB.
Increasing the weight of gold is also a strategic move to deal with the destabilizing position of the US dollar. In recent years, the status of the US dollar as an international reserve currency has been questioned and challenged to a certain extent, and increasing the increase in gold holdings can reduce dependence on the US dollar and improve the diversification of foreign exchange reserves.
In the long run, the value of gold, as a scarce resource, will remain high. A moderate increase in gold reserves can not only diversify risks, but also obtain certain asset appreciation income for the future.
China's increase in gold reserves is a prudent asset allocation strategy, which aims to optimize the structure of foreign exchange reserves, enhance the safety, liquidity and profitability of reserve assets, and maintain the country's economic and financial security. As the world landscape changes and the internationalization of the renminbi progresses, the People's Bank of China is likely to continue to moderately increase its holdings of gold reserves.
China is taking a multi-pronged approach to dealing with U.S. chip export controls to China. On the one hand, China has stepped up its efforts to innovate independently and strive to break through the bottleneck in the development of key technologies such as chips. In recent years, China has continuously increased its investment in integrated circuits, artificial intelligence and other fields, and has made certain progress. However, compared with developed countries, there is still a certain gap in China's technological level in these fields, and it needs to continue to make efforts.
On the other hand, China is also actively seeking to obtain the chips and devices it needs through other channels. For example, China is strengthening scientific and technological cooperation with other countries, importing needed chips and equipment from other countries. China is also promoting the development of the domestic chip industry, encouraging companies to increase investment and improve self-sufficiency.