CHINA / National

China to slow down rapid increase in forex reserves
Updated: 2006-04-21 10:21

China has noticed the negative impacts brought by the huge foreign exchange reserves and is taking steps to relieve the pressure, said spokesman of the National Bureau of Statistics on Thursday.

Exports of products that consume much energy and produce heavy pollution will be restricted in China, while more manufacturing equipments and high-tech products will be imported in the future, said spokesman Zheng Jingping for the National Bureau of Statistics at a press conference.

Zheng said these measures will be taken to seek a balance in China's foreign trade. China's continued trade surplus is regarded one reason for the surging foreign exchange reserves.

In addition, State Administration of Foreign Exchange also started to free up the country's foreign exchange regime recently with a shift from stockpiling foreign exchange reserves in State coffers to letting businesses and residents hold more foreign currency, said Zheng.

Some qualified commercial banks are also encouraged to invest in overseas financial market, Zheng added.

China's foreign exchange reserves, already replacing Japan as the world's biggest by February, continued its soaring trend last month, growing 32.8 percent year on year to 875.1 billion U.S. dollars.

The huge foreign exchange reserves, fuelled by China's trade surplus and surging direct foreign investment, indeed influenced China's economic growth, and limited the independence of the country's currency policy, Zheng acknowledged.

Zheng said it's normal for China to have trade deficit or surplus at a special stage, though in the long run the trade should be balanced.

With more and more multinationals opening factories in China, the share of processing trade has accounted for half of China's total trade. "So there must be trade surplus in the processing trade," said Zheng.

China recorded a trade surplus of 101.9 billion dollars last year, and the surplus in processing trade hit 142.5 billion dollars, about 1.4 times that of the whole trade.

"The trade surplus in China may last for a period as China's advantage of low production cost still exists, " said Zheng, adding that the U.S. deficit problem cannot be simply resorted to a yuan revaluation.

Zheng forecasts maybe 15 or 20 years later when China enters middle stage of aging society, with an increased production cost and lower saving rate, the trade surplus may then be reduced.