No bulk reduction of US dollar reserve
By Song Hongmei (Chinadaily.com.cn)Updated: 2007-07-04 09:44 Earlier reports believed that China's central bank sold massive US treasury bonds in April for the establishment of the forex investment company, which may start with US$200 billion in capital.
Analysts said China may not necessarily need to use its US$1.2 trillion in forex reserves as the country now has a trade surplus of about US$20 billion every month, and it plans to issue 1.55 trillion yuan (US$204.07 billion) worth of special bonds to buy forex reserves from the central bank to finance its new overseas investment agency.
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In January, China decided that a part of its forex reserves would be diverted to commercial investments with higher yields.
However, Zhao Xijun, finance professor with Renmin University of China, said that the country won't sell US treasuries in a large scale because it's a fairly good choice for investors. "It has better security and liquidity than many other investment options," he said.
The diversification of China's forex reserves will be gradual and won't hurt the dollar or financial markets, commented Ding Zhijie, deputy dean of the Financial Institute of the University of International Business and Economics.
Even if China reduces some of its US treasury holdings, Zhao said, the money
may not flow out of the US soil. "It may be shifted to other fields, such as
corporate bonds and the stock market."
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