Domestic banks were not allowed to hold USD deposits (because that would have meant export earnings leaked into the Chinese money supply and the RMB would have risen), so when an exporter deposited earnings with them, they would take the dollars to the PBOC who would issue them with an interest-bearing note.

Around 2017/18, the PBOC stopped doing this and allowed domestic banks to retain and invest the dollar earnings that exporters deposited. China's money supply is not directly related to the US money supply. China's capital account is still closed. All that has changed is that the onshore dollar market has increased (the PBOC retains a huge amount of control over lending decisions, Chinese state banks are not investing in US markets, it is being retained in China).