Tough task to manage huge forex reserves
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China will continue to face severe challenges managing its massive and growing foreign exchange reserves to prevent risks arising from the inflow of more hot money, the regulator cautioned yesterday.
A growing trade surplus is expected to boost the country's forex reserves, which were already the world's biggest at US$2.85 trillion by the end of 2010, over the next five years, Yi Gang, head of the State Administration of Foreign Exchange, said in remarks published on the agency's website.
Speculative funds have entered and will continue to flow into China as they aim to tap prospects for the yuan to appreciate and higher interest rates, Yi said.
The concerns were underscored yesterday as China reported foreign direct investment in the country rose 17.4 percent from a year earlier to a record of US$105.7 billion in 2010, according to the Ministry of Commerce.
FDI has been expanding for 17 consecutive months, raising worries that speculative money could be among the investment funds sneaking into the world's second-largest economy to earn quicker returns, said Chen Wei, an analyst at China Minzu Securities Co.
Yi said SAFE will team up with other government agencies to tackle any "unusual inflows of funds" while it continues to reform the structure of its forex reserves.
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