China’s Surplus Dilemma: From Treasuries to BRI Loans to Warehouses of Copper
For two decades, China’s persistent current account surplus has shaped the world economy. Every year, Beijing earns more foreign exchange than it spends, a reflection of the country’s role as global workshop. Because the yuan is managed against the dollar, the People’s Bank of China (PBoC) must step in to prevent appreciation, mopping up excess inflows by buying dollars and selling yuan. This raises a problem: what to do with the dollar assets that result.
The Treasury Decade
In the 2000s, the answer was straightforward. China channelled the proceeds into US Treasuries, building foreign reserves that swelled past $3tn. This “Chimerica” arrangement suited both sides. For Beijing, Treasuries were liquid, safe and easy to scale. For Washington, Chinese demand suppressed yields, allowing the US to finance twin deficits at low cost.
The global financial crisis of 2008 reinforced this pattern. Even as Western banks collapsed, Treasuries rallied, vindicating China’s choice of reserve asset. But cracks were forming. Chinese policymakers began to worry about excessive exposure to one counterparty—the United States—particularly as Washington’s debt burden grew. Tensions over trade, intellectual property and currency manipulation sharpened the sense that relying on American paper was strategically risky.
The BRI Experiment
After 2013, Beijing sought a new outlet for its surpluses. The launch of the Belt and Road Initiative (BRI) provided it. Policy banks such as China Development Bank and the Export-Import Bank of China began recycling dollars into loans for infrastructure across Asia, Africa and Latin America. The appeal was clear. Lending directly to developing economies put excess reserves to work, created demand for Chinese construction firms, and bought geopolitical goodwill. Ports in Pakistan, railways in Kenya, highways in Central Asia—all were funded by China’s dollar surpluses.
For a while, the model appeared to work. It offered an alternative to the passive accumulation of Treasuries, and an answer to accusations that China was a mere mercantilist creditor. Instead, Beijing styled itself as a partner in development, using financial muscle to underpin a new, Sinocentric global order.
Yet the limitations soon emerged. Many BRI borrowers struggled with repayment. Some projects proved economically or politically risky. Debt renegotiations in Sri Lanka, Zambia and elsewhere left Beijing entangled in messy sovereign restructurings. Western critics accused China of “debt-trap diplomacy,” even as Chinese officials quietly rued the poor risk-adjusted returns. Lending dollars to governments with fragile balance sheets proved no more sustainable than lending them to Washington, albeit for different reasons.
A World of Sanctions
If the BRI highlighted financial risks, geopolitics underscored strategic ones. The West’s freezing of Russia’s reserves in 2022 was a turning point. Suddenly, it was no longer theoretical that dollar assets could be rendered unusable by sanction. For Beijing, watching a fellow large surplus economy stripped of its rainy-day funds by political fiat was sobering. The US debt ceiling theatrics and the ballooning of American fiscal deficits further deepened unease.
Beijing’s long-running desire to diversify from Treasuries gained urgency. The PBoC and the State Administration of Foreign Exchange (SAFE) quietly reduced holdings of US debt. But if Treasuries and BRI loans were both problematic, what could absorb the steady inflow of surplus dollars?
The Turn to Metals
The answer, increasingly, has been commodities – specifically, industrial metals. China has been accumulating copper, aluminium, nickel and zinc far beyond immediate industrial needs. Some stockpiles are managed by the State Reserve Bureau, others by state-owned firms or entities linked to local governments. Warehouses in Shanghai and inland hubs brim with inventory.
Metals serve a dual purpose. Financially, they are dollar-denominated stores of value. Unlike Treasuries, they cannot be sanctioned if held domestically. Unlike BRI loans, they do not rely on the solvency of foreign governments. Strategically, they align with China’s industrial priorities. As the world electrifies, demand for copper, nickel and aluminium will surge. Stockpiling today ensures security of supply tomorrow and provides leverage over global markets.
In effect, Beijing has created a parallel reserve system – less liquid than Treasuries, but more tangible and politically insulated. Metals may not earn coupons, but they hedge against inflation and dollar debasement. For a state with a long-time horizon, the costs of storage are a price worth paying for autonomy.
Risks and Trade-Offs
The strategy is not without risks. Metals are volatile: the copper price collapsed during the 2008 crisis and again in 2015. Unlike Treasuries, they cannot be easily liquidated at scale. Hoarding also risks distorting global markets, fuelling accusations of manipulation. And China’s sheer presence as a buyer makes it vulnerable to buying high and depressing prices when it eventually sells.
Nor has the BRI disappeared. China still extends loans and builds projects, but with greater caution. New initiatives emphasise “small and green” investments rather than megaprojects. Lending in local currencies, especially yuan, is quietly being promoted to reduce dollar exposure.
From “Chimerica” to Strategic Autarky
The arc of China’s surplus management reflects the shifting global order. In the 2000s, Treasuries symbolised the financial symbiosis of “Chimerica.” After 2013, the BRI marked China’s bid to recycle surpluses into geopolitical influence. After 2022, metals stockpiles signify a defensive turn: insulating reserves from sanctions and positioning for a resource-constrained, decarbonising world.
Each phase reflects not only economic logic but also geopolitical calculation. What began as a marriage of convenience with Washington has become a strategy of hedging against it. China’s current account surplus remains vast. But where those dollars once built highways in Kansas or railways in Kenya, they are now being transmuted into silent reserves of copper and aluminium in Chinese warehouses.
For Beijing, the lesson of the past two decades is clear: the safest place for its surpluses is not in American debt or African debtors, but in hard assets it can control.