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China to further find ways to effectively use forex reserves
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21:37, February 19, 2009

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The State Administration of Foreign Exchange (SAFE) will actively conduct research with relevant government departments and further explore ways to effectively utilize China's foreign exchange reserves, said an official from the SAFE on Wednesday.

Fang Shangpu, deputy administrator of the State Administration of Foreign Exchange (SAFE), said this during a news conference hosted by the Information Office of the State Council on February 18

Fang said that China's foreign exchange reserves are purchased with renminbi by the central bank, and therefore, correspondingly there is a liability in renminbi assumed by the bank and is separate from the financial funds of the government.

Foreign exchange reserves should be used to expand foreign trade imports and overseas investment.

In the next stage, the SAFE will actively support China's need for forex reserves to expand domestic demand and increase imports. The SAFE will make things easier for companies investing abroad and better serve the country's economic construction.

Asked whether China would continue to buy US Treasury bonds and, if so, how much it would buy, Fang said the decisions would depend on China's needs, forex safety and the preservation of the value of the reserve stockpile.

Deng Xianhong, another deputy administrator of the SAFE, said that since the renminbi exchange rate mechanism was reformed, the renminbi has been appreciating against the US dollar and the euro to some extent.

At present, forming a renminbi exchange rate mechanism is in line with the reality of China's situation. China will continue to follow the principles of activeness, controllability and one step at a time to advance the reform of the renminbi exchange rate mechanism and keep the renminbi rate at a reasonable and balanced level for fundamental stability.

When talking about whether foreign capital flight has occurred, Deng said that some multinationals are indeed facing operational difficulties and capital shortages since their parent companies, located outside China, have been affected by the global financial crisis.

In response to this, they have wired out the profits distributed by their overseas companies or have withdrawn capital.

However, first of all, the amount involved in the cases mentioned above is limited compared with the total size of China's balance of payments, therefore, the phenomenon of foreign capital flight does not exist.

Secondly, every year there are foreign firms remitting out their profits or pulling money out of China. For the moment, the amount of profits that firms wire out might be higher than before, and the amount of capital withdrawn might be slightly higher, but in general they do not pose major problems.

Remitting out profits and withdrawing capital are both commercial behaviors, and conform to the regulations of exchange rate management and are deemed normal legal acts.

The deterioration of the international financial market might have an impact on China's cross-border capital flows but the SAFE has the ability to control massive amounts of cross-border capital remitting into and out of China.

By People's Daily Online



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