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 US$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 US$135.7
billion.
The increase was about US$73.4 billion more than the total of
China's trade surplus of US$46.4 billion plus its FDI of US$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.
(China Daily April 17, 2007)