China needs to retain foreign exchange reserves of around US$650
billion of, Cheng Siwei, vice chairman of the Standing
Committee of the Tenth National People's Congress (NPC), told a
financial conference over the weekend.
US$450 billion should be earmarked as strategic reserves, and a
further US$200 billion should be held to provide security for
Chinese enterprises investing overseas and for individuals, because
the Chinese currency is not freely convertible, Cheng said.
Cheng said that the government should reduce the inflow of
foreign currencies, and allow more outflow of foreign currencies to
gradually reduce its huge foreign exchange reserves.
China's rising trade surplus directly contributed to the
country's forex reserves, Cheng said.
He suggested the government boost imports to reduce the soaring
trade surplus and ink more government procurement contracts with
foreign countries.
The government should tighten curbs on currency speculation,
since anticipation of further appreciation of the yuan is another
reason for the flow of foreign currencies into China, he added.
At the same time, the country could boost the outflow of foreign
currencies by allowing Chinese corporations and individuals more
access to foreign currencies, according to Cheng.
To ensure continued growth in the value of the nation's foreign
exchanges, the country plans to establish a state forex investment
company, charged with investing about US$200 billion of China's
foreign exchange reserves.
Previous reports said that strategic energy investments would be
a priority for the soon-to-be-established company.
China's foreign exchange reserves, which reached US$1.066
trillion at the end of 2006, have grown by more than US$200 billion
annually in recent years.
(Xinhua News Agency April 4, 2007)