1 trillion-U.S. dollar reserves spark debate in China
?BEIJING, Nov. 15 (Xinhua) -- As official data flash up staggering 1
trillion U.S. dollars of foreign exchange reserves, China is debating whether
the huge stockpile is a blessing or a burden and what to do with it.
The huge reserves are a reflection of China's economic achievements
since reforms began in the 1980s, but observers worry that an excessive,
fast-growing stash will endanger currency stability and liquidity.
Since 1980, China's foreign exchange reserves have jumped from zero
to 1 trillion U.S. dollars, with rises of more than 200 billion U.S dollars in
each of the last two years.
The rapid growth of reserves could fuel speculation on the
appreciation of the Chinese currency, or Renminbi (RMB), said Tan Yaling,
research fellow with the China International Economic Relation Association
under the central bank.
The product of foreign trade revenue and foreign investment, China's
huge reserves are a target of international critics, who argue that the RMB
should be revalued, saying that the undervalued yuan gives Chinese products a
price advantage in international markets and hurts manufacturers from other
countries.
However, some economists say the rapidly growing and reforming
Chinese economy needs a huge reserve in order to protect itself against
financial risks created by speculators and possible financial crises.
"Huge U.S. dollar reserves can deter international speculators as
well as foreign politicians who like to make threats about economic sanctions,"
said Yang Yingjie, a Ph.D. in economics and associate professor at the Party
School of the Communist Party of China Central Committee.
Although China is estimated to need only 600 to 700 billion U.S.
dollars to guard against financial risks, a trillion is not excessive, said
Yang, adding that a stable financial environment is the key to the success of
the country's reforms and development.
It is not so much the quantity as the structure of the reserves that
is of concern, said Tan.
She said the government should consider diversifying the foreign
currencies held in reserve, but added that it will be hard to challenge the
dominance of the U.S. dollar in the next three to five years, as the United
States continues to set the pace for the global economy.
"The United States is the largest manipulator of foreign exchange
rates," said Liu Yihui, researcher at the Institute of Finance & Banking (IFB)
with the major official think tank Chinese Academy of Social Sciences, noting
that the superpower can eschew debt and provoke reserves losses in other
countries by devaluing the dollar.
Zhou Xiaochuan, governor of China's central bank, said Friday that
China is pursuing a more diversified forex reserves portfolio, triggering a
slump of the U.S. dollar in exchange markets.
"We are doing something about foreign exchange reserves," said Yu
Weibin, an expert with the IFB, while declining an interview request by Xinhua.
What should be done with the reserves?
Some experts recommend buying foreign high-tech equipment and
strategic materials like oil and farmland, supplementing pension funds or
supporting public services such as education, medical care and conservation.
However, others argue that such choices may fan inflation risks,
because the central bank may have to spend more RMB to keep exchange rates
stable.
Wu Xiaoling, deputy governor of the central bank, has stated that
forex reserves cannot be consumed with impunity, pointing out that the RMB must
be used to pay for the reserves.
Wu counseled investing the reserves in state-owned banks, especially
listed ones, as previous experience showed that this would preserve and
increase the value of the reserves.
Liu argued that part of the reserves should be used to buy oil, gold,
silver and other rare metals as a hedge against dollar risks.
"The central bank has to consider monetary policy, but the reserves
are a national resource that need to be proactively managed," said Tan.
She said the government should relax restrictions on foreign exchange
held by individuals and enterprises.
Foreign experts and organizations like the International Monetary
Fund have also suggested a free floating exchange rate system and the lifting
of foreign exchange restrictions but Liu disagreed, pointing to risks of
turbulence that would require even larger forex reserves for financial
security.
"In the long term, China should reduce the excessive growth of forex
reserves by adopting a different mode of economic growth, but stable exchange
rates are necessary if the market is to fully play its role in adjusting the
economic structure," said Liu.
As the debate rages on, China's State Administration of Foreign
Exchange (SAFE) has decided to recruit 30 more staff members for its Reserves
Management Department, bringing the total number of staff to 200, according to
the China Business News. Each of them is in charge of about 5 billion U.S
dollars.
Having a trillion U.S. dollars is indeed a blessing, but managing it
is quite a burden.
Editor: Ling Zhu
The Mulindwas Communication Group
"With Yoweri Museveni, Uganda is in anarchy"
Groupe de communication Mulindwas
"avec Yoweri Museveni, l'Ouganda est dans l'anarchie"
_______________________________________________
Ugandanet mailing list
[email protected]
http://kym.net/mailman/listinfo/ugandanet
% UGANDANET is generously hosted by INFOCOM http://www.infocom.co.ug/
The above comments and data are owned by whoever posted them (including
attachments if any). The List's Host is not responsible for them in any way.
---------------------------------------
