Chinese Mandarin - Overseas listings help swell reserves

BIZCHINA / News

Overseas listings help swell reserves

By Hong Guan (China Daily)
Updated: 2007-04-17 10:16

The explosive first-quarter growth of foreign exchange reserves came from
not only the trade surplus, but also the overseas stock market successes
of Chinese companies and currency swaps, a central bank vice-governor
said.

But economists said the gap between the new reserves and trade surplus
may be explained by more factors, such as the country's returns on its
investment in US treasury bonds and previously uncounted
non-manufacturing foreign direct investment (FDI).

Foreign exchange reserves hit $1.2 trillion, the world's largest, by the
end of March, up 37.36 percent year on year.

In the first quarter, reserves increased by $135.7 billion.

The increase was about $73.4 billion more than the total of China's trade
surplus of $46.4 billion plus its FDI of $15.9 billion during the same
period, leaving people bewildered where the money had come from.

Funds raised from IPOs by the overseas-listed enterprises, which are
denominated in foreign currencies and have been sold back to the central
bank, contributed to the swelling reserves, Wu Xiaoling, vice-governor of
the People's Bank of China, told reporters on the sidelines of a seminar
in Guangzhou over the weekend.

Wang Qing, an economist with the Bank of America in Hong Kong, said
China's macroeconomic measures since the second half of last year could
have encouraged the banks to place funds offshore to make more profits
than if they used the money for lending domestically.

But the recent easing of the macroeconomic policies may have led to the
banks pulling the money back for domestic lending, Wang said.

Analysts also said they may have opted to remit the money to the mainland
and convert it into renminbi for the expected revaluation of the yuan.

Wu also confirmed market suspicions that the unwinding of currency swaps
between the central bank and commercial banks is another factor behind
the growth in the reserves.

A currency swap involves agreement between two parties to exchange a
given amount of one currency for another and, after an agreed period of
time, to give back the original amounts exchanged.

The Standard Chartered Bank in Hong Kong said there may be more factors
for the unusual growth of China's reserves.

While China made returns on its investment in the US treasuries, which
are included in its foreign exchange reserves, its non-manufacturing FDI,
including real estate and services sector investment not counted by the
Ministry of Commerce, may explain part of the increased reserves, said
the bank in a note.

Vice-Governor Wu also said macroeconomic controls had had some effect, as
seen in the data released last week.

She said credit growth will further slow as the authorities tighten
market liquidity.

(For more biz stories, please visit Industry Updates)

Related Stories 

� China may issue tougher overseas listing rule
===========================================================================
� CSRC sets new overseas listing rule
===========================================================================
� China to loosen restrictions on QDII overseas investment
===========================================================================

Learn Chinese, Chinesepod