China needs US$650b forex reserves
(XFN-Asia)Updated: 2007-04-02 15:53
The growth of Chinese foreign exchange reserves is hampering monetary
policy making, and the country needs only US$650 billion in hard currency
holdings for security purposes, much less than its current total, a senior
legislator said.
Cheng Siwei, vice-chairman of the standing committee of China's parliament, told a conference that the country needs US$450 billion in strategic reserves, enough to pay for three months of imports and ensure economic stability, and another US$200 billion to fund the overseas investment strategies of Chinese corporations.
"The rest of the US$1 trillion should be used to find ways to invest abroad," he said.
The nation's parliament at the beginning of last month approved the creation of a new vehicle to manage China's excess foreign exchange reserves holdings, which stood at US$1.066 trillion at the end of 2006.
Cheng, whose government body is not directly involved in the creation of the vehicle, identified increased access to foreign exchange by Chinese corporations and individuals as one of the ways to temper the growth of the country's hard currency holdings and bring down the country's international payments surplus.
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