The State Administration of Foreign Exchange (SAFE) has taken a series of measures to cope with China's huge foreign exchange reserves, which surged to 659.1 billion US dollars at the end of March of this year.

The latest annual report of the administration said with the rapid accumulation of foreign exchange reserves and severe fluctuations in international financial markets, managing the foreign exchange reserves to achieve better yields is a great challenge facing the administration.

Last year, the country's foreign exchange reserves continued to rise rapidly to 609.9 billion US dollars as of Dec. 31, 2004.

The report said in 2004, the SAFE, based on "accurate" judgment of the foreign exchange market trend, carried out various operational activities to optimize the currency composition of assets.

To deal with the highly volatile yields in the bond market, the SAFE made "every effort" to improve the returns of bond investment. It also further boosted foreign exchange reserve management, conduct bond repurchase and lending transactions and explored market potential to increase investment returns, the report said.

Meanwhile, the SAFE reinforced research and analysis and focused on crucial issues concerning reserve management and operations. Various investment decision-making groups were set up and the investment decision-making mechanism was improved.

The risk management committee was strengthened and relevant regulations on risk management were amended and improved, it noted.

"The SAFE has formulated a complete set of foreign exchange reserve operation and management system in conformity with China'sactual situation ... based on the principle of security, liquidityand return," the report said.

According to the country's law, the People's Bank of China, the central bank, holds the foreign exchange reserves and the SAFE is authorized by the bank to operate and manage state foreign exchange reserves.

Source: Xinhua