China’s Currency Reserves May Rise to $2 Trillion PDF Print E-mail
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Sunday, 20 July 2008 20:00
Nov. 27 (Bloomberg) -- China’s foreign-exchange reserves will “hopefully” reach $2 trillion this year, National Bureau of Statistics chief economist Yao Jingyuan said. Yao spoke in a telephone interview after earlier being cited in news reports as saying at a Beijing forum that the reserves had already climbed to that level. He said he had been misunderstood. Trade surpluses helped to swell the reserves, the world’s biggest, to $1.9 trillion at the end of September, according to the central bank. Larger reserves would strengthen the nation’s finances as the government boosts spending and cuts interest rates to counter the financial crisis. The Peoples Bank of China cut rates yesterday by the most in 11 years, less than three weeks after the government announced a 4 trillion yuan ($586 billion) stimulus plan. Premier Wen Jiabao is trying to prevent a deeper slowdown in the world’s fourth-biggest economy as construction slumps and exports wane. China reported a record $35.2 billion trade surplus last month. The reserves have increased 14 times in size in the past decade, according to government data. They topped $1 trillion in 2006. Standard & Poor’s cited the reserves and the nation’s “strong fiscal position” when it upgraded China’s long-term debt rating to A+, the fifth-highest grade, on July 31. Asian Crisis Yao quoted the $2 trillion figure while arguing that China was stronger than when the Asian financial crisis hit in 1997 and 1998. The reserves, along with high levels of savings by Chinese households, will help the nation to weather the current crisis, statistics bureau spokesman Li Xiaochao wrote in a report published today on the finance ministry’s Web site. China is grappling with how best to manage the reserves, forecast by the International Monetary Fund to reach $2.2 trillion by the end of December and $2.7 trillion by the end of 2009. Diversifying away from investing in U.S. Treasury bills has brought losses. China Investment Corp., the nation’s sovereign wealth fund, put money into Morgan Stanley and Blackstone Group LP before their stocks plunged. The accumulation of the reserves has slowed in the past two quarters from a record $153.9 billion gain in the first three months of this year. That suggests the nation is attracting less “hot money,” a term for speculative capital. China has stalled the yuan’s gains against the dollar since mid-July. That step, rate cuts, the global credit crisis, and crackdowns on illegal channels for investment may have stemmed inflows. China has cut rates four times from mid-September.
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