(1) How did it come from?
Mainly due to the high consumption and low savings in the United States and the high savings and low prices of China's export products, the structural imbalance between the two sides' import and export trade. As China exports more goods to the United States, the United States pays more dollars to China people (of course, it can be settled in various forms), resulting in China holding more dollars in foreign exchange.
(2) Why focus on foreign exchange reserves?
This is mainly due to China's foreign exchange settlement and sale system. The foreign exchange obtained by the export of enterprises should be converted into RMB from the government, and the foreign exchange purchased from major commercial banks should also be used for import, so that a large amount of exported foreign exchange is concentrated in the government, forming a so-called reserve.
(3) Advantages and disadvantages of large foreign exchange reserves.
Advantages: First of all, one of the main purposes of foreign exchange reserves is to intervene in the foreign exchange market, so that when the RMB exchange rate is affected by the market, it can be bought or sold to intervene in exchange rate fluctuations, thus forming a kind of protection for the price of the country's export commodities (the essence of protection is actually price subsidies). Secondly, it can be used to buy advanced technology and equipment in foreign markets or invest overseas.
Disadvantages: Because the reserves are mainly in US dollars, the fluctuation of fair value of US dollars will pose risks to China's foreign exchange reserves.
2. What should China do?
As the first floor said, it is necessary to diversify investment and make rational use of it.
There is no need to specify the diversification of investment. Li Xing mainly adopts foreign advanced equipment and technology. However, this road is not very easy. Foreign countries will not export advanced equipment and technology to China as the China administration proposed to the United States.