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It appears the great unwinding of global imbalances and the dollar’s ensuing demise are notions that belong up there with the tooth fairy. China added $178bn to its foreign reserves in the second quarter, taking its total booty past $2,000bn, the equivalent of twice the annual economic output of New York state.

Although there are no official statistics on how China has apportioned these new reserves, US data supports the thesis that China is not yet jettisoning the dollar, however antsy Beijing gets about the greenback’s global dominance.

Even so, the pattern of China’s reserve accumulation is changing. While China is still buying more US debt, it is not necessarily doing so with cash recycled from American consumers.

The sum of China’s trade surplus and foreign direct investment, the usual driver of reserve accumulation, was the lowest in three years. At about $60bn, it was also about half last year’s quarterly average of $100bn, according to Royal Bank of Scotland. Rather, China’s hoarding is being driven by speculative funds.

After all, China, the world’s favourite green shoot, is back in bubble land; its reserve growth is just one indication of this. Poor data mean estimates vary widely, but some $30bn to $70bn of hot money flowed into China in the second quarter. Much of that is flowing into real assets such as property or the stock market, where trading volumes are three times last year’s levels. Hong Kong residents, after grinding down renminbi deposits last year, added more funds in May. Such inflows are also adding pressure on the renminbi to revalue.

To mop up this liquidity, Beijing has started selling one-year sterilisation bills again (so far this year, the central bank has injected net cash into the system). Roaring reserves, a bubbly stock market and the tentative start of monetary tightening: all these recall the glory days of 2007-08.

Still, do not expect everything to return full cycle. Exports, for one, are weak. While that remains the case, renminbi appreciation is off the cards.

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