China's forming of a foreign exchange investment company will have no adverse impact on U.S.-dollar denominated assets, said Chinese Premier Wen Jiabao Friday.
China is preparing for the establishment of a foreign exchange investment company, which will not be affiliated to any government department or institution, Wen said at a press conference following the closure of the annual session of the National People 's Congress, China's top legislature.
The company, which will be subject to supervision, is aimed at operating the investment in line with state laws to preserve and increase the value of foreign exchange, he said.
"China purchases assets denominated by U.S. dollars in the mutual benefits of both countries. The new company will not have any adverse impact on U.S.-dollar denominated assets," he said while answering a question from a Wall Street Journal reporter.
China's foreign exchange reserves have exceeded 1 trillion U.S.dollars. "The proper use of such a huge amount of foreign exchange reserves has become a new problem to us," he said.
China has not practiced overseas investment for a long time and is short of experience, Wen said, adding that the country's non-financial outbounding investment only reached 73.3 billion U.S. dollars by the end of 2005.
Last year saw a rise of 16 billion U.S. dollars in non-financial outbounding investment, which was still a scanty amount compared with developed countries, he said.
While delivering the government work report to the NPC annual session, Wen said, "We will strengthen and improve foreign exchange administration, and actively explore and develop channels and means for appropriately using state foreign exchange reserves."
The State Administration of Foreign Exchange granted 15 banks overseas investment quotas totaling 13.4 billion U.S. dollars in 2006. Meanwhile, 15 insurance companies were granted quotas totaling 5.17 billion U.S. dollars and one fund management company was given a quota of 500 million U.S. dollars.
Contrary to its past policies, China has implemented stricter regulations on incoming foreign exchange and loosened rigid controls on outgoing reserves, commented Huang Zemin, head of the International Finance Institute of East China Normal University.