China plans to increase the ratio of Euros in its foreign
exchange holdings given the stability in the European Union (EU)
economic growth and in the value of the European single currency,
said a central bank vice governor on Thursday.
However, China has no plans yet to reduce the proportion of US
dollar assets in its coffers, Wu Xiaoling told an economic forum in
Brussels, the Shanghai-based Oriental Morning Post
reported Friday.
China's forex reserves reached US$1.2 trillion at the end of
March and about 70 percent of the holdings are believed to be in US
dollar assets, especially US treasuries.
To address the trade imbalance with western countries, China
could take measures to stimulate domestic consumption and improve
the flexibility of the Chinese currency.
"If we intend to solve the problem of imbalanced trade, we will
first increase the flexibility of the yuan exchange rate, but that
will not be the main means," Wu said.
It is more important for China to increase its citizens' incomes
and boost domestic consumption through the improvement of social
security networks, according to Wu.
She went on to say China will not bow to outside pressure and
accelerate the revaluation of the yuan.
If China's exchange rate reforms go smoothly, then the
appreciation of the yuan will continue, the central banker said.
However, if the country's economy runs into problems and the
exchange rate reforms stagnate, then the Chinese currency risks
depreciation, Wu noted.
On the stock market, she said it is growing too fast and
regulators hope they can develop it in a more stable way. "If the
stock market can't operate smoothly, then investors' confidence
will be hurt and their consumption will be affected."
On top of a 130 percent rally in 2006, China's benchmark
Shanghai Composite Index has surged more than 60 percent so far
this year before a 6.5 plummet Wednesday that was caused by a hike
of stamp tax to 0.3 percent from 0.1 percent.
(Chinadaily.com.cn June 1, 2007)