China's reserves exceed $1,000bn

China's reserves exceed $1,000bn
By Peter Garnham
Copyright The Financial Times Limited 2006
Published: November 7 2006 02:00 | Last updated: November 7 2006 02:00



China's foreign currency reserves have exceeded $1,000bn for the first time, according to reports yesterday on the country's state television network.

The announcement had been expected since China's State Administration of Foreign Exchange announced last month that its reserves hit $987.9bn at the end of September.
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China's forex reserves became the largest in the world this year when they overtook those of Japan, which stood at $881bn at the end of September.

Analysts said the report was likely to put the spotlight on the renminbi, which many of the nation's trading partners believe is deeply undervalued.

The renminbi is currently allowed to fluctuate in a daily 0.3 per cent band around a central rate set by the People's Bank of China.

Under this managed float system the renminbi has risen 2.4 per cent against the dollar to Rmb7.8750 this year. However, there have been calls, particularly from the US, for China to let the renminbi appreciate faster or even float freely.

Fan Gang, director of China's National Economic Research Institute and member of China's monetary policy committee, said yesterday that while he was expecting "more China-bashing" as its stockpiles surged past $1,000bn, a rapid revaluation of the renminbi could have catastrophic consequences for the country's economic development and the employment of millions of poor workers.

"The real problem the world faces today is an overvalued dollar, not just against the renminbi but against all major currencies," said Mr Fan. "The main responsibility for this imbalance lies with a US Treasury, which is printing too much money."

Simon Derrick, currency research chief at the Bank of New York, said Mr Fan's comments reflected a growing level of concern in China that at 70 per cent, the proportion of dollars it holds in its reserves was too high.

"$1,000bn is just a number, but a phenomenal number," said Mr Derrick. "It might be the trigger for the Chinese authorities to consider a fundamental change in reserve allocation."

China's reserves are growing at a rate of nearly $30m an hour, thanks mostly to a gap between imports and exports that trebled to $102bn in 2005. China's trade surplus so far this year has surpassed last year's, hitting $108.9bn by the end of September and is expected to exceed $140bn for the year.