China's foreign exchange reserve had reached US$1.43 trillion by the end
of September, up 45.1 percent year-on-year, the People's Bank of China announced
yesterday.
A total of 367.3 billion U.S. dollars were added to the country's foreign
exchange reserve in the first nine months of 2007, said the central bank.
In September alone, the forex reserve rose by 25 billion dollars.
China's soaring trade surplus is still the major contributing factor to the
forex reserve boom.
Data newly released by the General Administration of Customs shows that
China's trade surplus for the first nine months of the year has reached 185.7
billion dollars, exceeding the total trade surplus of 177.47 billion dollars for
2006.
The huge forex reserve is considered the main reason for excess liquidity in
China, as the central bank has to spend quantities of basic money to purchase
foreign exchange, thus aggravating the problem of surplus fluidity.
By the end of September, the M2 -- a broad measure of money supply, which
indicates the monetary demand of the whole of country and possible inflation --
grew by 18.45 percent from a year ago to 39.31 trillion yuan.
The growth rate is 1.39 percentage points higher than the end of June and
still higher than the target growth of 16 percent set by the central bank at the
beginning of this year.
A total amount of 195.8 billion yuan was poured into the market during the
first nine months, 30.2 billion yuan more than the same period of last year.
On the other hand, continuous growth of the forex reserve has in fact
increased the pressure on appreciation of the Chinese currency, which in turn
has exerted greater pressure on value preservation of China's forex reserve.
The central parity rate of the RMB was 7.5114 to the U.S. dollar on Friday.
In a move to make better use of the country's huge forex reserve, China
announced the establishment of the China Investment Corporate Ltd. (CIC), the
country's state forex investment company at the end of September.
The state-owned investment company will invest in overseas financial markets.
The registered capital of 200 billion dollars of the CIC all comes from the
forex reserve of the country, which will be obtained by issuing a total of 1.55
trillion yuan special treasury bonds by the Ministry of Finance (MOF).
So far, the ministry has issued more than 700 billion yuan (93.3 billion
dollars) of special treasury bonds, with 600 billion yuan to the central bank
and 100 billion yuan targeting the general public. It will issue another 100
billion yuan of treasury bonds by the end of this year.