Although China has seen a large trade surplus in the past few years, it is striking that the large trade surplus has not been accompanied by large selling of foreign exchange (FX) on China's foreign exchange market. While this has prompted many market participants to talk about potential "FX hoarding," it has not resulted in a significant increase in official FX reserves or private sector FX deposits. In fact, private sector FX deposits dropped for the most of the past few years. Is this "FX hoarding" or "FX dishoarding"?

Our analysis below indicates that it is important to look holistically across the balance of payments (BOP), remittance, and conversion, as well as loans and deposits data, to formulate a comprehensive view of whether and how "FX hoarding" has evolved in the past few years. We find that corporates may have converted about US$0.3 trillion less than usual in the past few years, but these were mainly to repay FX loans instead of accumulating private sector FX deposits.