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Dollar decline won't lead to forex sale
By Xu Binglan (China Daily)
Updated: 2005-03-06 01:48
Dollar-denominated assets in China's foreign exchange reserves will not be
sold just because the greenback's value is declining, the country's foreign
exchange chief said yesterday.
Guo Shuqing, director of the State Administration of Foreign Exchange, also
said the country will seek to narrow the surplus in international payments to
avoid the negative effects of a big surplus.
 He was speaking on the sidelines of a meeting of the National Committee of
the Chinese People's Political Consultative Conference (CPPCC) of which he is a
member.
"We will not adjust the structure of our foreign exchange reserves according
to short-term fluctuations (such as the one seen in the US dollar in the past
year)," Guo said.
"If we sell US dollars now when it is tumbling, it means we lose money. If we
do sell them, we have to buy other currencies such as the euro. But what if the
euro drops?"
Guo, also a vice-governor of the People's Bank of China, the central bank,
appeared to be responding to speculation that the country may react to the
decline of the US dollar by dumping the country's dollar holdings.
China has invested part of its foreign exchange reserves in US-dollar assets
such as US treasury bonds, although he refused to say how much the amount was.
It is natural for the country to contemplate changing the currency mix of its
reserves, but that will be made after taking into consideration a number of
factors, such as the major currencies the country uses in foreign trade payment,
foreign investment and repaying foreign debt, he continued.
Central government policy-makers reached a consensus to pursue a more
balanced position over international payments, said Guo.
And the government will try to meet that goal by measures such as limiting
the exports of companies which are not efficient or generate pollution and by
allowing more capital outflow.
"Basically balanced international payments with a small surplus" has been the
policy target of the government for many years.
But in practice, large surpluses have resulted mainly because of stresses on
export growth and the emphasis on the significance of foreign exchange reserves,
lest another international financial crisis such as the one in the late 1990s
occurs.
But the cost of having a large surplus is being increasingly understood. In
an article published earlier this year, Guo said preference of exports over
imports will impede the technological upgrading of domestic enterprises.
Swelling foreign exchange reserves have also resulted in an unwanted growth
in the money supply - fuelling surging investment growth in the past two years -
because the central bank had to buy foreign exchange to keep the renminbi's
value stable.
Government efforts to narrow the surplus will not have an immediate effect
because of many factors that cannot be controlled.
(China Daily 03/06/2005 page1)
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