China should cap forex reserves at $1.3t

Updated: 2011-04-25 10:31


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BEIJING -- China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between $800 billion to $1.3 trillion , Tang told a forum in Beijing, saying that the current reserve amount is too high.

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China's foreign exchange reserves increased by $197.4 billion in the first three months of this year to $3.04 trillion by the end of March.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Meanwhile, Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that $1 trillion would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.

However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.


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