A senior official yesterday announced that China's significant foreign exchange reserves would soon benefit from a specially-created new state investment company.

 

Wu Xiaoling, vice governor of the central bank, revealed that preparations towards setting up the company were underway, and that a specific launch date would be determined upon the speed of progress and future studies into its precise remit.

 

She said the existing China Central Huijin Investment Co. would make up a component department of the new company, although this transition would not mark a significant change in its operations.

 

Wu refuted previous media reports stating the company would raise US$200 billion, pointing out that the final quota would be determined by real need.

 

"Financial stocks will definitely be included, as China Central Huijin Investment Co. has already invested in this field and it will be part of the forthcoming company," said the vice governor, adding that the feasibility of strategic investment had also been discussed

 

According to Wu, the new company would not destabilize the dollar-denominated bond market, since the current amount of forex reserves in US dollars would not be reduced. However, more investment might well be seen in non-dollar sectors using newly increased forex reserves.

 

Wu also illustrated the inflation pressure currently besieging the central bank, adding that the bank would determine any interest rate hikes through watching national economic development.

 

Wu reiterated that the RMB appreciation is closely tied to the market, not determined by the central bank.

 

The vice governor revealed that foreign banks could become primary dealers of the inter-bank foreign exchange market in the future, adding that foreign companies could play a more active role in issuing RMB bonds.

 

"As to the inter-bank bond market, we would like to see more creative products and services introduced by financial institutions and enterprises nationwide," said Wu, trying to ward off any potential fallouts brought by RMB appreciation in business in the form of qualified domestic institutional investors (QDII).

 

(Xinhua News Agency March 6, 2007)