January 20, 2010
By REUTERS
BEIJING — An increase of $453 billion last year in China’s foreign exchange reserves partly reflected currency valuation effects and was not solely the result of inflows of speculative funds, the Chinese currency regulator said Tuesday.
In a statement on its Web site, the State Administration of Foreign Exchange rejected media reports that the difference between the funds from the Chinese trade surplus and foreign direct investment, on the one hand, and the total increase in reserves, on the other hand, had been caused by speculative “hot money.”
The agency said it had sufficient information to explain the gap last year of $167 billion.
“It is absolutely not right to do simple subtractions and declare that the gap is unexplainable, or even label it as hot money,” the agency said.
But it acknowledged that speculative money was entering China in the form of disguised trade and investment and that low interest rates in the United States were encouraging the flow of money into China.
For these reasons, the agency said, China needed to retain controls on capital flows, even though it reaffirmed the longstanding policy to move toward the full convertibility of the renminbi, and to give individuals and institutions in mainland China more opportunities to invest abroad.
Caijing Magazine, a Chinese business publication, reported Tuesday that Shanghai was considering allowing its residents to invest outside mainland China.
The Caijing report citing Fang Xinghai, head of the city’s financial services office, said the program would not limit investors to Hong Kong. The report did not provide details on the scope or timing of any such move.
The foreign exchange agency did not provide any information about the currency composition of China’s $2.4 trillion in foreign exchange reserves, the world’s largest stockpile.
Analysts said about two-thirds of the reserves are in dollars.
“We can’t release details of investment returns and currency changes, but we can use some relevant figures as references,” the Foreign Exchange agency said.
It cited the 8.5 percent fall in the dollar index in 2009 and data from the International Monetary Fund showing that nondollar assets accounted for about 40 percent of global foreign exchange reserves.
“The appreciation of nondollar currencies against the dollar in 2009 has definitely led to growth in outstanding foreign exchange reserves calculated in dollars,” the agency said.
Investment returns also increased the Chinese reserves, it said. As an example, it cited the annual average return of 4.8 percent in the Barclays Global Investors bond index from 2005 to 2009.
“People may estimate and calculate, based on the size of the forex reserves, how much the reserves can generate each year in way of returns,” the agency said.
Taiwan moved to rein in excess market liquidity by raising the rate at which banks borrow and lend to each other to an eight-month high Tuesday, pointing to a possible tightening in monetary policy, Reuters reported from Taipei.
Taiwan’s overnight lending rate was raised 0.01 percentage point to 0.12 percent, an official at Taiwan’s central bank said. The bank had typically made adjustments in the overnight rate of 0.001 percentage point since the middle of last year.
“It’s a revision, but not a very drastic one, because the overnight rate was so low anyway,” said the official, who asked not to be identified, as he was not authorized to speak to the news media.
Many policy makers in Asia, including Taiwan, have become increasingly worried about consumer prices and asset bubbles in property and share markets.
The Taiwanese dollar rose to 31.772 to the dollar, while the benchmark Taiex was down about 1 percent after the increase. Yields on benchmark 10-year Taiwanese government bonds rose.
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