Understanding China's massive foreign-exchange reserves has only become harder as its official stockpile has grown. With the central bank's holdings reaching an astronomical $2.447 trillion in March, even minor changes in exchange rates, interest rates or other market prices can result in swings of billions of dollars in the value of its holdings.

Greater clarity on how those factors affect the reserves is now coming from the State Administration of Foreign Exchange, the central bank arm that acts as custodian of China's reserves, which seems to have become somewhat more forthcoming about the reserves under its new U.S.-educated chief Yi Gang.

In its latest update on China's balance of payments statistics for 2009, SAFE has broken reserve accumulation for the last few years into actual purchases of foreign exchange--what it calls transactional changes--and valuation changes caused by moves in exchange rates and the prices of China's investments. That makes it more clear just how much money China has been putting into global capital markets. Such clarity is probably desirable as China's huge reserves become a growing focus of public attention both at home and in the U.S., where most of its reserves are believed to be invested.

'Since 2008, due to the increasing size of China's foreign-exchange reserve assets and the rather large fluctuations in the exchange rate of the U.S. dollar, the size of the non-transactional change in foreign-exchange reserves has expanded, and may affect the international community's judgment as to the true balance of payments,' SAFE said in its report.

The total effect has been sizable recently: Valuation changes were equivalent to nearly 15% of the annual accumulation of reserves in both 2008 and 2009.

SAFE estimates a negativevaluation change of $60.6 billion for 2008--in other words, actual purchases of foreign reserves, at $478.3 billion, exceeded by that amount the increase in the nominal value of the reserves, at $417.8 billion. SAFE estimates a $71 billionpositivevaluation change in 2009.

SAFE didn't further break down how much of the valuation changes was due to exchange-rate changes and how much was due to changes in the price of the securities it holds. But currency movements could explain a lot. The dollar strengthened against major currencies in 2008, which would have pushed down the value of China's non-dollar investments when reported in U.S. dollars. In 2009, the dollar declined in value against the euro and some other major currencies, which would have boosted the dollar value of China's holdings in those currencies. (Fluctuations in the dollar's value of course don't affect the dollar-denominated part of SAFE's portfolio, since that's the currency in which it reports.)

(In 2009 China also saw an increase of $16.3 billion in reserve assets that are not foreign exchange, primarily gold and IMF Special Drawings Rights. Changes in such other assets had been minimal in previous years, but China in 2009 publicly updated its gold holdings for the first time in years, and like other countries also got an allocation of additional SDRs from the IMF.)

SAFE says the new presentation of the numbers brings China's foreign-exchange reserve statistics into compliance with the fifth edition of the IMF's standards on balance of payments statistics (which dates from 1993; the IMF has since moved on to the sixth edition). SAFE defended its failure to follow those standards in previous years by arguing that valuation changes weren't significant before 2008.

The revised historical data SAFE published show that is not quite true. Valuation changes did add just $1 billion to the accumulation of foreign-exchange reserves in 2007. But there were also negativevaluation changes of $37.8 billion in 2006 and $43.6 billion in 2005. That's only a month or so of reserve accumulation at recent rates, but relative to the size of the reserves at the time it's about the same magnitude as the last couple of years.

SAFE hasn't yet published an estimate for how valuation changes affected China's accumulation of reserves in the first quarter of 2010. The face value of the reserves increased by just $47.93 billion over the quarter, compared with an increase of $126.56 billion in the fourth quarter of 2009. Part of the slowdown is certainly due to China's shrinking trade surplus, which is the main driver of China's reserve buildup.

But the U.S. dollar was rallying early this year, and that would have made reserve accumulation appear even smaller by reducing the value of China's non-dollar holdings. On our very rough back-of-the-envelope estimates, the rise in the dollar could have shaved around $40 billion from the first quarter's increase in reserves. The real increase in the reserves was probably much larger than the headline $47.93 billion, but pinning that down still requires some further clarity from SAFE.