Foreign exchange reserves set to surpass US$1 trillion
By Jin Rong (China Daily)
Updated: 2006-10-30 08:28
But such a plan should proceed with caution, both Li and Yi warned, citing
the huge risks involved due to changing resource prices.
In the short
term, increasing imports is an effective way to decelerate foreign reserves,
economists said. This would also reduce trade frictions with some countries that
have a high trade deficit with China.
Economists also said the country
should further relax controls on capital outflow, in order to create a better
balance of international payments.
In a bid to ease foreign reserves and
broaden investment channels, China has introduced a QDII (Qualified Domestic
Institutional Investors) scheme, allowing them to invest overseas.
By
October 10, the foreign exchange regulator had granted quotas worth US$11.6
billion to QDIIs.
"This is the right approach for creating a two-way
capital corridor," said Yi. "We used to put too much emphasis on attracting
foreign investment and feared capital outflow."
China is also shifting
from a long-held policy of stockpiling foreign reserves in State coffers, and
instead encouraging households and businesses to hold more foreign
currency.
Individuals, for example, are now allowed to buy up to
US$20,000 in foreign exchange a year, up from the previous
US$8,000.
Previously, China invested some foreign exchange reserves in
banks.
Central Huijin Investment Company, an investment arm of the
central bank, injected a total of US$45 billion in foreign exchange reserves
into China Construction Bank and Bank of China in 2003.
It poured another
US$15 billion into the Industrial and Commercial Bank of China in
2005.
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