BEIJING, Oct. 29 (Xinhua) -- China's foreign exchange
reserves will burst the 1 trillion U.S. dollar barrier at the end of October or
early November, experts have predicted, triggering discussion across the
The People's Bank of China, or central bank,
announced two weeks ago that China held 987.9 billion U.S. dollars of foreign
exchange reserves at the end of September, up 28.46 percent year-on-year. The
country's foreign exchange reserves rose by 18.77 billion U.S. dollars monthly
in the first nine months this year.
The central bank will make a new announcement about
China's foreign exchange reserves in January 2007. However, insiders said that
there is no doubt that China's foreign exchange reserves will reach 1 trillion
U.S. dollars very soon.
China overtook Japan as the world's largest holder of
foreign exchange reserves in February.
Experts say that burgeoning foreign exchange reserves
reflect China's growing strength, but warn that a high level of foreign exchange
reserves also has a downside.
The country's hefty foreign exchange reserves make
its fast economic development more risky, said Fan Gang, a member of the
monetary policy committee under the People's Bank of China.
He said that the economy is showing signs of cooling
down, with overheating being reined in as a result of macro-control measures.
However, mounting foreign exchange reserves and excessive trade surpluses will
create risks for the healthy growth of the economy.
He said that massive capital inflows from overseas
are not seeking to speculate on the RMB, as many people believe, but instead
eyeing business opportunities created by the booming economy.
The very modest RMB fluctuation band gives
speculators little room to rake in profits. China's buoyant economic prospects
are what investors really value, he said.
Zhong Wei, professor with the finance research center
of Beijing Teachers' University, said hefty foreign exchange reserves require a
brand-new management system in China.
Zhong suggested that China fix foreign exchange
reserves at a level of no more than 800 billion U.S. dollars and allocate the
rest to useful purposes.
Zhong said the surplus reserves could be used to
purchase strategic materials for China's economic development, to upgrade
technologies in state-owned enterprises and to reform the state-owned financial
sector. The extra foreign exchange reserves could also be used to introduce
talented people from overseas and to boost the nation's social security fund,
The State Administration of Foreign Exchange, which
has paid close attention to the increase in foreign exchange reserves, says
maintaining a balance between international income and expenses is one of the
major tasks for China's economic and social development.
The administration is considering taking measures to
slow down the increase in foreign exchange reserves.
The management of foreign exchange reserves will be
improved so that they can be used as effectively as possible, according to the