Although the outflow of China's foreign exchange reserve as foreign investment does not enjoy high profit rates, it avoids risks in general, an analyst told the Beijing Morning Post on Tuesday.

According to statistics released by China's central bank last Thursday, the country's foreign exchange reserve surged to 711 billion US dollars by the end of June.

There has been a continuous net outflow of China's forex in the past decade with a very low profit rate, in contrast with the high profit rate of foreign investment in China. Some are beginning to question whether China's forex investment decisions have been wise.

For years China has used a large part of its forex reserve to buy US T-bonds, whose ten-year profit rate is less than 5 percent, Yin Jianfeng, a finance researcher with the Chinese Academy of Social Sciences told the Beijing Morning Post.

During the 1993-2003 period, foreign countries had used 1.72 trillion yuan (207 billion US dollars) of funds from China, according to figures from the central bank.

Yin, however, believed that China can avoid risks in this way, though some revenue may be sacrificed. US T-bonds, with low profit rate, also have low risk, he said.

China's financial sectors are not well-equipped to manage risks, so under current circumstances, this is the best way for China to handle its autonomous foreign exchange reserves, Yin said.

As China's foreign exchange system becomes more flexible in the future, the country may find better ways to deal with its tremendous forex reserves, he said.

Source: Xinhua