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This is a simplified analysis of the subject; is it correct?
China has a foreign trade with a positive balance.
Chinese exporters billing in dollars receive dollars that they change against Yuans through the BoC at the fixed rate of 8.28 Yuans for 1 $. The BoC, once it has covered its need in cash $ and provided for the payments of foreign investments or reimbursement of previous loans, has now an assets with no yield. Then the BoC buys US bonds so that this asset will not be sterile. We remind that a few years ago, there was an epidemic amongst the central banks which were selling their gold in order to buy bonds instead; the BoC is on this line of though. It is not their buying of bonds which reinforce their currency; it is their positive trade balance.
Now, lets assume that they accept to revaluate the Yuan by 20% (6.62Yuans for 1 $). The Chinese exporters billing in $ will quickly increase their prices in order to get the same amount of Yuans than before; this will causes a decrease in the volume of sales which will reduce the positive foreign trade balance, and the amount of dollars (converted in bonds) monthly accumulating in the coffers of the BoC. Correlatively, this effect will be partly offset by the decrease in price of imported goods billed in dollars. One step further, the reduction of the cost of imported goods will be partly reflected in the cost of exported goods then in their price in $, the increase of which being finally smaller than the revaluation. We see that a revaluation does not suffice to revert the trend of a currency to be reinforced by a consistent positive trade balance.
There are two possibilities to stop the increasing stockpile of foreign currency held by the BoC : one is to make foreign investments (not bonds), but there is so much to do in China that we cannot imagine a foreign investment policy launched by the Chinese anytime soon; the other is to increase the imports either in machine, equipments and structural facilities or consumer products.
Overall, it is easy to understand that the Chinese government is not in a hurry to modify anything to the current situation which lets open all possibilities.
China has a foreign trade with a positive balance.
Chinese exporters billing in dollars receive dollars that they change against Yuans through the BoC at the fixed rate of 8.28 Yuans for 1 $. The BoC, once it has covered its need in cash $ and provided for the payments of foreign investments or reimbursement of previous loans, has now an assets with no yield. Then the BoC buys US bonds so that this asset will not be sterile. We remind that a few years ago, there was an epidemic amongst the central banks which were selling their gold in order to buy bonds instead; the BoC is on this line of though. It is not their buying of bonds which reinforce their currency; it is their positive trade balance.
Now, lets assume that they accept to revaluate the Yuan by 20% (6.62Yuans for 1 $). The Chinese exporters billing in $ will quickly increase their prices in order to get the same amount of Yuans than before; this will causes a decrease in the volume of sales which will reduce the positive foreign trade balance, and the amount of dollars (converted in bonds) monthly accumulating in the coffers of the BoC. Correlatively, this effect will be partly offset by the decrease in price of imported goods billed in dollars. One step further, the reduction of the cost of imported goods will be partly reflected in the cost of exported goods then in their price in $, the increase of which being finally smaller than the revaluation. We see that a revaluation does not suffice to revert the trend of a currency to be reinforced by a consistent positive trade balance.
There are two possibilities to stop the increasing stockpile of foreign currency held by the BoC : one is to make foreign investments (not bonds), but there is so much to do in China that we cannot imagine a foreign investment policy launched by the Chinese anytime soon; the other is to increase the imports either in machine, equipments and structural facilities or consumer products.
Overall, it is easy to understand that the Chinese government is not in a hurry to modify anything to the current situation which lets open all possibilities.
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