Economy

China should diversify forex reserves

(Xinhua)
Updated: 2011-03-09 11:08

BEIJING - China needs to diversify its massive holding of foreign exchange reserves to prevent consistent devaluation amid volatile global economic conditions, a leading Chinese economist said on Tuesday.

"The portfolio of China's foreign exchanges should be adjusted based on changing conditions," said said Li Yining, also a member of the National Committee of the Chinese People's Political Consultative Conference, the top advisory body.

"China should moderately increase the size of gold in its foreign exchange reserves," Li said at plenary session of the CPPCC National Committee.

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China had accumulated $2.85 trillion by the end of 2010 from robust foreign trade over the past a few years. The foreign exchange regulator has not disclose the currency structure of the holding, but the US dollar is widely believed to take up a lion's share.

Following the US quantative easing monetary policy, the value of the US dollar also faltered, renewing fears that the value of China's stockpile would shrink.

Li also advised to use the foreign currencies to buy land, mines, forests and even blue chip stocks overseas, a move which he said could bring more returns than the holding of foreign bonds.

The money could also be loaned to domestic enterprises to invest abroad, and buy advanced equipment and badly-needed raw materials and fuels, he noted.

As China's foreign reserves are largely held by the government, Li said it is safe to let residents hold more to diversify risks.