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China's forex reserve tops $1.33 trillion
www.chinaview.cn 2007-07-11 19:03:02
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    BEIJING, July 11 (Xinhua) -- China's foreign exchange reserve reached 1.33 trillion U.S. dollars at the end of June, up 41.6 percent from the same period of last year, the People's Bank of China announced here Wednesday.

    A total of 266.3 billion U.S. dollars were added to the country's foreign exchange reserve in the first half of 2007, 144 billion U.S. dollars more than a year ago, said the central bank.

    The six-month rise is higher than the whole-year rise of 247.3 billion U.S. dollars in 2006.

    In June alone, the forex reserve rose by 40 billion U.S. dollars, 23.9 billion U.S. dollars more than the same month of last year.

    China's soaring trade surplus is the major factor contributing to the forex reserve boom, said Wang Yuanlong, an economist with the Bank of China.

    Data newly released by the General Administration of Customs shows that China's trade surplus in June hit a new high of 26.91 billion U.S. dollars, up 85.5 percent on the same month last year.

    The aggregate surplus for the first half of the year jumped 83.1 percent to 112.5 billion U.S. dollars.

    China's forex reserve came to 609.9 billion U.S. dollars by 2004, 818.9 billion U.S. dollars by 2005 and 853.6 billion U.S. dollars by the end of last February, making the country overtake Japan to become the biggest foreign reserve holder of the world.

    The forex reserve exceeded 1 trillion U.S. dollars at the end of October, 2006 and 1.2 trillion U.S. dollars at the end of the first quarter of 2007.

    "A large-scale forex reserve may backfire," said Wang. "It is the major reason leading to the excess liquidity in China."

    The central bank has to spend quantities of basic money to purchase foreign exchange, thus aggravating the problem of surplus fluidity.

    By the end of June, the M2 -- a broad measure of money supply -- grew by 17.06 percent from a year ago, 0.21 percentage point more slowly than the end of March, but still higher than the target growth of 16 percent set by the central bank at the beginning of this year.

    On the other hand, continuous growth of forex reserve has in fact increased the pressure on appreciation of the Chinese currency, which in turn has exerted greater pressure on value preservation of China's forex reserve.

    The central parity rate of the RMB hit a new high on Wednesday, standing at 7.5712 yuan to one U.S. dollar, after reaching 7.5845 yuan to one U.S. dollar on Tuesday.

    Wang predicted that the current large amount of forex reserve may decrease at the end of 2007 as a result of a series of macro-economic control policies that have been taken by the central government.

    To balance the rising trade surplus which has brought increasing trade frictions between China and its trade partners, the country has lowered export rebates on over 2,200 types of goods and revoked that on some 500 resources goods or goods consuming high energy or causing environmental pollution as of July 1.

    Wang attributed the sharp rise in trade surplus and forex reserve in June partly to the adoption of the export rebate adjustment.

    China plans to launch a state forex investment company to make better use of the country's huge foreign exchange reserve. The forex investment company, still under preparation, has made its first investment to buy non-voting shares valued at 3 billion U.S. dollars of the U.S. private equity group - the Blackstone Group.

    At the end of June, China's top legislature has given green light to the issuance of 1.55 trillion yuan special treasury bonds by the Ministry of Finance to buy 200 billion U.S. dollars forex reserve to finance the state forex reserve company.

    The move will both reduce China's forex reserve and curb the excess liquidity of the country, said Li Yang, director of the finance research institute of the Chinese Academy of Social Sciences.

Editor: Wang Hongjiang
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