China sets no target for forex reserve: official

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Last updated at: (Beijing Time) Monday, March 08, 2004

China sets no target for forex reserve: official

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China's rapid rise in foreign exchange reserve, which grew by 116.8 billion US dollars to 403.3 billion US dollars in 2003, was the outcome of the sound economic performance instead of being preset by the Chinese government, said officials Sunday.

On China's forex reserve, Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE), said it could not be said to be "excessive" or "deficient".

A nation's foreign exchange reserve epitomizes the state of its balance of international payment, and the result of its macro-economic performance and, therefore, it is usually hard for the government to set targets for its reserve, he explained.

The increase in China's foreign exchange reserve, he noted, is attributable to numerous domestic and overseas factors as the country records continued surplus in international payments.

Chinese officials last week rejected warnings by US Federal Reserve Chairman Alan Greenspan that China faces grave economic consequences if the country continues to pile up massive US dollar holdings as it defends the pegged yuan system.

Guo, also a member of the National Committee of the Chinese People's Political Consultative Conference, told reporters that officials of the Republic of Korea said after the Asian Financial Crisis in late 1990 the more the forex reserve a country held, the better.

"Provided China was in a serious financial crisis," he said, "the country would need perhaps several hundred billion US dollars, as tens of billions US dollars (in emergency aid) is not adequate as its economic scale is very big."

There is no such a lender under the current international financial system that can provide such a huge amount of money, China must hinges on its self-reliant efforts, he said.

There is no unified benchmark on the appropriate amount of forex reserve a country should hold in both theory and practice, he noted.

The director said developing countries have increased their forex reserves since the 1997 Asian Financial Crisis.

"The Republic of Korea, Indonesia, Thailand, Malaysia and the Philippines have increased their forex reserves by 160 billion US dollars over 1997."

China maintains the forex reserve mainly for the purpose of guarding against international financial risks, ensuring the balance of international payments and safeguard security of the national economy.

As a large developing country at the stage of fast economic growth and transition of economic restructuring, sufficient forex reserve will raise China's capability of international settlement and protect the credibility of both the country and its companies, and improve overseas confidence of the Chinese economy and currency, Guo said.

Betting on Yuan's appreciation would pay high price

To bet on appreciation of Chinese currency RMB is likely to pay high prices, warned Guo.

The director-general said during an exclusive interview with Xinhua that the RMB appreciation anticipation is expected to ease this year as economies of the United States and other developed countries are showing clear signs of recovery, which would result in backflow of the US dollar and ease China's excessive supply of foreign exchange.

It is widely believed that the US Federal Reserve is likely to raise interest rates in the middle of this year and that will narrow the gap with RMB in interest rates, he said.

China has already recorded deficit in its foreign trade so far this year, the director said. Although it is hard to predict for the whole year, China's trade surplus is likely to be reduced. This, plus the rebound of inflation and the worrisome assets bubbles, would thwart the RMB appreciation anticipation.

He reminded domestic enterprises and residents of the risks involved in the fluctuation of exchange rates and told them to be on the alert against risks in order to prevent unnecessary losses.

"Betting on RMB appreciation is likely to pay enormous prices," he warned.

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