BEIJING - China's
foreign-exchange reserve reached US$1.2 trillion
by the end of March, up 37.36% from the same
period last year, according to the People's Bank
of China (PBoC), the country's central bank.
"I'm not surprised at the figure," said
Cai Zhizhou, an economist with Peking University,
adding that the forex reserve's sharp rise has
become "normal".
China's forex reserve
came to $609.9 billion by 2004, $818.9
billion by 2005 and $853.6
billion by the end of last February, overtaking
Japan's to become the world's largest.
"The rising trade surplus is the major
factor contributing to the forex-reserve boom,"
Cai said, and pointed out that low prices of
Chinese goods contributed to the rising trade
surplus. "China needs [the] forex reserve to avoid
financial risks as the country's dependence on
foreign trade is going up."
China's
foreign trade has risen by more than 20% annually
since 2002, while the ratio of foreign trade to
gross domestic product has risen from 30% to
nearly 70% during the same period.
The
country's trade surplus reached $46.44 billion in
the first quarter, nearly double the $23.3 billion
surplus in the same period last year.
However, the rising trade surplus has
brought increasing trade frictions between China
and its major trade partners. To balance it, China
has lowered and is considering further lowering
export rebates on certain goods, ranging from
steel to textiles.
The trade surplus in
March went down to $6.87 billion, cracking down
through the $10 billion mark for the first time
since March 2006.
"A large-scale forex
reserve may backfire," said Cai. "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. 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.
It is estimated that by
2010, China's forex reserve will reach $2.9
trillion. China thus plans to launch a state forex
investment company. The investment company will
issue $200 billion to $250 billion worth of
yuan-denominated bonds. Money to be raised will
first be used as strategic investment for energy
enterprises such as the China National Offshore
Oil Co (CNOOC), reports have said.
Meanwhile, foreign investment continues to
pour into China. China approved 9,297
foreign-invested enterprises in the first quarter
of this year, an increase of 4.36% over the same
period of last year, according to the latest
statistics from the Ministry of Commerce.
The actual use of foreign funds reached
$15.893 billion in the first quarter, up 11.56%
year on year.
The top 10 investors in
China were Hong Kong, the British Virgin Islands,
Japan, South Korea, Singapore, the United States,
the Cayman Islands, Samoa, Taiwan and Mauritius.
The actual investment of the top 10
accounted for 86.02% of the total actual use of
foreign funds of the country in the period.
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