HONG KONG - The continued growth of China's foreign exchange reserves, which
reached a record of more than US$1.9 trillion at the end of September, is
boosting the country's confidence that it can maintain stability as the
international financial crisis widens and deepens.
China's not fully convertible currency, its huge foreign reserves and
relatively fast economic growth have formed a great barrier against the
financial troubles elsewhere, Justin Yifu Lin, the World Bank's chief economist
and senior vice president, said recently.
Chinese Premier Wen Jiabao said, "We have full confidence in China's economic
development and financial stability," stressing that the most important thing
is "to do our own business well", maintain the stability of the economy and the
financial and capital
markets. "It is the biggest contribution to the world when a big country with a
population of 1.3 billion is able to maintain a lasting, smooth and fast
Wang Qishan, the vice premier overseeing the country's finance, said on
Thursday the country is fully confident and capable of overcoming current
economic difficulties, vowing to work closely with other countries to safeguard
stability of the global financial market.
China's foreign exchange reserves, the world's largest, surged 33% to $1.906
trillion last month compared with a year earlier, according to the People's
Bank of China (PBoC) website.
The expansion of foreign reserves has slowed to a 35.7% rise in the first half
of this year from 47.7% in the whole of 2007, as the country's trade surplus
has shrunk slightly, falling 2.7% to $180.9 billion in the first three quarters
of this year compared with 12 months earlier, according to the General
Administration of Customs.
Even so, the trade surplus in monthly terms has expanded in the past two
months, growing 22.2% year-on-year in September to $29.4 billion, after a 14%
jump in August, following an increase of only 3.8% in July.
The surplus jumped ... "as commodities prices and shipping rates slumped," Li
Jian, a Ministry of Commerce analyst, was quoted by Xinhua News Agency as
Li also attributed the higher monthly surplus to the slower advance in the yuan
against the US dollar. The Chinese currency has remained almost steady within a
narrow band against the US dollar since July.
While the country's foreign exchange reserves remain strong, there are
indications that outflows of funds are increasing. Foreign direct investment
totaled $6.64 billion in September, according to the Ministry of Commerce. The
combination of FDI and trade surplus gives the country $36.04 billion in
foreign currency income in September.
The central bank said $377.3 billion were added to the foreign reserves in the
first three quarters, with a $21.4 billion increase in September.
That means there was a difference of $14.64 billion between the sum of trade
surplus plus foreign investment and the growth of the foreign reserves,
indicating that a similar amount foreign funds flowed out of the country.
Sheng Songcheng, an official with PBoC's Shenyang Branch, said there were signs
that some foreign funds, including speculative "hot" money, had began to flow
out of the country. Foreign businesses have since July speeded up remitting
their profits and making advance payments, while overseas capital inflows have
begun to slow, Sheng said
Despite this, Tan Yaling, an economist with China International Economic
Relations Society, said the growth in foreign reserves indicated a growing
interest in yuan assets as in investment haven amid the global financial
"Under the current financial crisis that originated in the United States and
with the euro also softening, China's yuan-denominated assets appear relatively
safe, creating an influx of foreign investment, which also contributed to the
growth in the third quarter," Xinhua reported Tan saying.
Zhang Bin, a Chinese Academy of Social Sciences researcher, said the US
financial crisis had a limited impact on the country's huge foreign reserves,
as the country's foreign currency supervisor had diversified holdings so as to
avert some risks.
The central bank report also said the country's financial system remained
Outstanding local currency loans expanded 14.48 % in September from a year
earlier to 29.65 trillion yuan, rising 0.19 percentage points on the previous
month. The pace of increase in outstanding loans in foreign currencies, which
jumped 37.84% in August from a year earlier, slowed in September to a 30.86%
growth to $269.2 billion.
The PBoC said local-currency deposits were up 18.79% in September from a year
earlier to 45.49 trillion yuan, while foreign-currency deposits grew 9.37% to