Chinese School - China has US$285b of excess forex reserves

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China has US$285b of excess forex reserves

www.chinanews.cn 2005-11-17 13:49:13

Chinanews, Nov. 17 - Chief of Asia for Fitch Ratings James McCormack made
the observation in a report on November 15 that China presently has at
least US$280 billion of excess foreign exchange reserves.
That report reckons that by the end of 2005 Chinese forex reserves would
exceed US$800 billion and keep growing by about US$160 billion in each of
the subsequent several years. By 2007, China will become the first
country to have forex reserves exceeding US$1 trillion.
James McCormack pointed out that the following two indicators would show
the degree of sufficiency for China's forex reserves. At present, Chinese
forex reserves are 7.9 fold its short-term debt and 12.6 fold its monthly
import amount. "Chinese forex reserves are about twice the amount for
similar countries. On average, a country's reserves only need to cover
about three months of imports or exceed short-term foreign debt by a
factor of three."
In addition, forex reserves constitute about one-fifth of M2 money
supply. Although this ratio is not particularly high, but due to strict
domestic capital control, there will not be large amount of capital
outflow and therefore no need to cater for this particular risk.
Fitch Ratings also says in its report that calculating from published
figures, China's forex reserves comprise of US$240 of U.S. treasury debt,
US$130 billion of U.S. government bonds, around US$15 billion in matters
relating to international clearing, and another US$390 billion in
investments whose targets are not clear. "Some of these funds would be
invested in other channels and other funds would be funneled through
offshore venues such as the Caribbean Islands to the U.S." James
McCormack pointed out.

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