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China may use forex to buy oil
Updated: 2005-05-31 18:59

China is exploring ways to use some of its huge foreign exchange reserves to buy imported oil, according to a published report Tuesday.

A foreign oil tank unloads crude oil at an unknown Chinese port. Photo taken on January 15, 2005. [newsphoto]
The Shanghai Securities News reported, citing an unidentified source, that the plan was first proposed as early as 2000 and would help China attain the twin objectives of making better use of its foreign exchange and ensuring vital oil supplies, according to AFX-Asia.

The Chinese newspaper quoted Li Yang, a senior economist at the Chinese Academy of Social Sciences and a former member of the monetary policy committee under the central bank, as saying the plan to use foreign exchange reserves to build up strategic oil reserves is reasonable.

But Li said the biggest obstacle to the plan is coordinating the actions of various government ministries and departments.

China had foreign exchange reserves of $659 billion as of the end of March. Some economists have recommended that China diversify its reserves, which are still heavily weighted in U.S. dollars.

In March, Guo Shuqing, director of the State Administration of Foreign Exchange, suggested China could use some of its foreign exchange reserves to purchase imported oil, AFX said.

China already plans to build a strategic oil reserve, though this plan is believed to be making slow progress.

Niu Li, a researcher on global oil issues with the State Information Center, was quoted in the Shanghai Securities News Tuesday as saying the government should speed up this plan to shift reserves into oil in order to reduce investment risk.

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