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Thursday, 19 February 2009
Beijing to use forex reserves to grow economy
Beijing will increasingly use its US$2 trillion in foreign exchange reserves to support domestic growth and to finance the overseas expansion of Chinese companies, senior officials said yesterday.
(BEIJING) Beijing will increasingly use its US$2 trillion in foreign exchange reserves to support domestic growth and to finance the overseas expansion of Chinese companies, senior officials said yesterday.
Harnessing the reserves to boost imports would help bring down China’s huge trade surplus, which is a source of political friction with the United States and the European Union, especially now that the world economy is slumping.
‘We will actively expand channels and ways to use the foreign exchange reserves. In particular, we will explore how the forex reserves can better serve domestic economic development,’ Deng Xianhong, deputy director of the State Administration of Foreign Exchange (SAFE), told a news conference.
Mr. Deng did not go into detail, and repeated pledges in the past to buy more goods from abroad have failed to rein in the trade surplus, which reached a record US$295.46 billion in 2008.
China’s current account surplus, a broader measure of trade and payments, jumped almost 20 per cent last year to US$440 billion, Mr. Deng disclosed.
China’s central bank buys most of the surplus foreign currency flowing into the economy in order to prevent the yuan from rising. It then entrusts SAFE to recycle the cash overseas.
SAFE invests the bulk of the reserves in liquid debt, notably US Treasury bonds, and Beijing is wary of taking excessive risks after suffering heavy book losses on stakes in financial companies such as Blackstone and Morgan Stanley.
At the same time, policymakers are aware that depressed valuations and clogged-up credit markets represent a golden opportunity for China, flush with cash, to secure long-term supplies of energy and raw materials to feed its factories.
The past week alone has witnessed three major resource deals:
• State-owned aluminium group Chinalco has unveiled plans to invest US$19.5 billion in Rio Tinto Ltd.
• State-owned metals trader Minmetals has agreed to pay US$1.7 billion for Oz Minerals Ltd, the world’s No 2 zinc miner.
• China Development Bank, also state-owned, has agreed to lend US$25 billion to two Russian oil companies to be repaid through oil supplies.
And yesterday, Australian iron ore miner Fortescue Metals Group said that it had held talks with China Investment Corp, the country’s US$200 billion sovereign wealth fund, about investment opportunities.
‘In the next stage, we will actively support the country’s need for forex reserves to expand domestic demand and increase imports. We will provide financing support to companies investing abroad and serve the country’s economic growth,’ Fang Shangpu, another SAFE deputy director, told the news conference.
Asked whether China would continue to buy US Treasuries, Mr. Fang said that this would depend on the country’s own needs and the imperative of preserving the value of the stockpile of reserves, which is by far the world’s largest.
To that end, he called on Western governments to put a floor under their economies as soon as possible to protect the interests of investors and to boost confidence.
‘We hope the major reserve currency countries can take active measures to effectively address the global financial crisis and economic recession,’ he said.
Mr. Deng played down talk in financial markets of significant capital outflows from China due to the global credit crunch.
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Beijing to use forex reserves to grow economy
Reuters
19 February 2009
(BEIJING) Beijing will increasingly use its US$2 trillion in foreign exchange reserves to support domestic growth and to finance the overseas expansion of Chinese companies, senior officials said yesterday.
Harnessing the reserves to boost imports would help bring down China’s huge trade surplus, which is a source of political friction with the United States and the European Union, especially now that the world economy is slumping.
‘We will actively expand channels and ways to use the foreign exchange reserves. In particular, we will explore how the forex reserves can better serve domestic economic development,’ Deng Xianhong, deputy director of the State Administration of Foreign Exchange (SAFE), told a news conference.
Mr. Deng did not go into detail, and repeated pledges in the past to buy more goods from abroad have failed to rein in the trade surplus, which reached a record US$295.46 billion in 2008.
China’s current account surplus, a broader measure of trade and payments, jumped almost 20 per cent last year to US$440 billion, Mr. Deng disclosed.
China’s central bank buys most of the surplus foreign currency flowing into the economy in order to prevent the yuan from rising. It then entrusts SAFE to recycle the cash overseas.
SAFE invests the bulk of the reserves in liquid debt, notably US Treasury bonds, and Beijing is wary of taking excessive risks after suffering heavy book losses on stakes in financial companies such as Blackstone and Morgan Stanley.
At the same time, policymakers are aware that depressed valuations and clogged-up credit markets represent a golden opportunity for China, flush with cash, to secure long-term supplies of energy and raw materials to feed its factories.
The past week alone has witnessed three major resource deals:
• State-owned aluminium group Chinalco has unveiled plans to invest US$19.5 billion in Rio Tinto Ltd.
• State-owned metals trader Minmetals has agreed to pay US$1.7 billion for Oz Minerals Ltd, the world’s No 2 zinc miner.
• China Development Bank, also state-owned, has agreed to lend US$25 billion to two Russian oil companies to be repaid through oil supplies.
And yesterday, Australian iron ore miner Fortescue Metals Group said that it had held talks with China Investment Corp, the country’s US$200 billion sovereign wealth fund, about investment opportunities.
‘In the next stage, we will actively support the country’s need for forex reserves to expand domestic demand and increase imports. We will provide financing support to companies investing abroad and serve the country’s economic growth,’ Fang Shangpu, another SAFE deputy director, told the news conference.
Asked whether China would continue to buy US Treasuries, Mr. Fang said that this would depend on the country’s own needs and the imperative of preserving the value of the stockpile of reserves, which is by far the world’s largest.
To that end, he called on Western governments to put a floor under their economies as soon as possible to protect the interests of investors and to boost confidence.
‘We hope the major reserve currency countries can take active measures to effectively address the global financial crisis and economic recession,’ he said.
Mr. Deng played down talk in financial markets of significant capital outflows from China due to the global credit crunch.
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