China's Forex Reserves Top $1.43 Trillion

Increase of 45% from last year

China's foreign exchange reserves, already the world's largest, surpassed $1.43 trillion at the end of September, the central bank said Oct. 12. The figure was up 45.1% from a year earlier.

The news came the same day that the government said the trade surplus, the main source of forex reserve growth, hit $185.7 billion in the first nine months, exceeding the $177.5 billion for all of last year.

In the first nine months of 2007, foreign direct investment rose 10.9% from the same period in 2006 to $47.2 billion.

Having accumulated this vast amount of money, Chinese policy-makers are faced with the challenge of finding good ways to invest it. About 70% of foreign reserves is generally believed to be held in U.S. dollar-denominated paper, principally U.S. government bonds. This has proved a less-than-ideal solution, given not just the low yields on government debt, but also the weakening of the U.S. currency. To cope with this problem, the government late last month launched the China Investment Corp., charged with managing about $200 billion of the nation's reserves.

The China Investment Corp. will try to maximize the proceeds via long-term investments "within a range of acceptable risks," according to earlier reports in the state media. The investment corporation's actions are being closely watched worldwide for their possible impact on financial markets.

Copyright Agence France-Presse, 2007

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