Dollar-denominated assets in China's foreign exchange reserves
will not be sold just because the greenback's value is declining,
the country's foreign exchange chief said Saturday.
Guo Shuqing, director of the State Administration of Foreign
Exchange, also said the country will seek to narrow the surplus in
international payments to avoid the negative effects of a big
surplus.
He was speaking on the sidelines of a meeting of the National
Committee of the Chinese People's Political Consultative Conference
(CPPCC) of which he is a member.
"We will not adjust the structure of our foreign exchange
reserves according to short-term fluctuations (such as the one seen
in the US dollar in the past year)," Guo said.
"If we sell US dollars now when it is tumbling, it means we lose
money. If we do sell them, we have to buy other currencies such as
the euro. But what if the euro drops?"
Guo, also a vice-governor of the ,
the central bank, appeared to be responding to speculation that the
country may react to the decline of the US dollar by dumping the
country's dollar holdings.
China has invested part of its foreign exchange reserves in
US-dollar assets such as US treasury bonds, although he refused to
say how much the amount was.
It is natural for the country to contemplate changing the
currency mix of its reserves, but that will be made after taking
into consideration a number of factors, such as the major
currencies the country uses in foreign trade payment, foreign
investment and repaying foreign debt, he continued.
Central government policy-makers reached a consensus to pursue a
more balanced position over international payments, said Guo.
And the government will try to meet that goal by measures such
as limiting the exports of companies which are not efficient or
generate pollution and by allowing more capital outflow.
"Basically balanced international payments with a small surplus"
has been the policy target of the government for many years.
But in practice, large surpluses have resulted mainly because of
stresses on export growth and the emphasis on the significance of
foreign exchange reserves, lest another international financial
crisis such as the one in the late 1990s occurs.
But the cost of having a large surplus is being increasingly
understood. In an article published earlier this year, Guo said
preference of exports over imports will impede the technological
upgrading of domestic enterprises.
Swelling foreign exchange reserves have also resulted in an
unwanted growth in the money supply -- fuelling surging investment
growth in the past two years -- because the central bank had to buy
foreign exchange to keep the renminbi's value stable.
Government efforts to narrow the surplus will not have an
immediate effect because of many factors that cannot be
controlled.
(China Daily March 6, 2005)