News Analysis: How can China well manage huge U.S. dollar assets?

Transform economic growth model

Market analysts hold that it is truely hard to find safe and profitable investment varieties for China’s massive foreign exchange reserves. "The key is to reduce the trade surplus and transform the economic growth model from the export-driven to domestic consumption driven."

“Basicly, China should reduce the forex reserves in a gradual manner through transforming economic growth model,” said Chen Zhiwu, professor of Yale University.

Zhang Ming, with the China's Academy of Social Sciences, emphasized that "we should transform the growth model through structural adjustment and curb the continuous accumulation of forex reserves by reversing double surplus."

"If the country's foreign exchange reserves continue to grow at a fast pace, there is little chance of getting out of the cycle," Ken Peng, senior China economist with BNP Paribas  said. "You have to do something with the accumulated dollars."

Regarding the ever-expanding forex reserves, the State Administration of Foreign Exchange (SAFE) said that China would take comprehensive measures to push forward economic structure readjustment and transform economic growth model as to ease the pressure of capital inflow, facilitate the balance of international payments.

Pushing forward internationalization of RMB yuan

Analysts share the view that from the long term, China should accelerate the process of turning the RMB yuan into an international currency in a move to reduce dollar dependence.

“The only way out to get rid of dollar hegemony and U.S. debts pitfall is to produce a substitute for U.S. dollar and U.S. debts” said Xiang Songzuo, deputy director of currency research institute of Renmin Univeristy,

“Euro came into being as Europe wanted to shake off the overdependence on U.S. dollar. So, the long-term strategy for China is to internationalize RMB, in an effort to make yuan a real international reserve currency, which can match up with U.S. dollar,” Xiang added.

Xiang further explained that for the short term, China should reduce the dollar holdings and separate parts of the forex reserves to the nationals and allow them to invest overseas. "Many countries, including Britain, Japan and U.S have such experiences in managing their forex reserves," he added.

With a rash of new preferential policy measures announced by the central government during Chinese Vice Premier Li Keqiang's visit to Hong Kong, the SAR is expected to get a major boost as an offshore RMB center in the not too long future, which will accelerate the process of turning the RMB yuan into an international currency and find better ways to enhance the safety of China's international money.