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China's forex reserves hit US$1.95 trln
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China's foreign exchange reserves rose 16 percent year-on-year to 1.9537 trillion U.S. dollars by the end of March, said the People's Bank of China on Saturday.

It represents an increase of 7.7 billion dollars for the first quarter, but the increase was 146.2 billion dollars lower than the same period of last year.

Outstanding foreign currency loans stood at 235.2 billion U.S. dollars by the end of March, down 11.7 percent year on year.

In the first quarter, foreign currency loans dropped by 8.5 billion U.S. dollars. The decline was 57.3 billion U.S. dollars heavier over the same period of last year.

In March, foreign currency loans rose by 4.3 billion U.S. dollars. The increase was 6.4 billion U.S. dollars lower than the same period of last year.

Meanwhile, outstanding foreign currency deposits rose 28.9 percent, or 7.5 billion U.S. dollars, to 200.3 billion U.S. dollars in the first quarter. The increase was 13 billion U.S. dollars higher over the same period of last year.

In March alone, foreign currency deposits rose by 3.3 billion U.S. dollars. The increase was 1.8 billion U.S. dollars higher over the same month in 2008.

Analysts said the smaller growth of foreign exchange reserves in the first quarter was related with changes in the value of non-U.S.-dollar assets and money flows under the capital account.

In March alone, the foreign exchange reserves rose by 41.7 billion U.S. dollars. The increase was 6.7 billion U.S. dollars higher than the corresponding period of last year.

The country's foreign exchange reserves reduced to 1.914 trillion U.S. dollars at the end of January and 1.912 trillion U.S. dollars at the end of February.

"Changes of foreign exchange reserves in the first quarter were mainly driven by non-U.S.-dollar assets' volatile fluctuation," said Liu Yuhui, an economist with Chinese Academy of Social Sciences (CASS).

During the first quarter, especially the first two months, non-dollar foreign currencies dropped heavily against the U.S. dollar, leaving about 40 percent of the country's non-dollar assets depreciated.

Meanwhile, the country's trade surplus had reduced during the first quarter due to a weakening external demand.

Exports fell 17.5 percent in January, 25.7 percent in February and 17.1 percent in March. In February, trade surplus plummeted by 34.3 billion U.S. dollars to 4.8 billion.

"The 7.7-billion-dollar increase in foreign exchange reserves for the first quarter showed the country's economy still depends heavily on external demand," said Mei Xinyu, an economist with the Ministry of Commerce (MOC).

Yuan Gangming, a researcher with the CASS, said the smaller increase in foreign exchange reserves might also be caused by capital flight.

Official statistics show during the first two months, the actually-utilized foreign direct investment dropped by 26.2 percent.

A large proportion of the country's foreign exchange reserves are invested in U.S. treasuries and notes. Last month, the U.S. Federal Reserve announced a plan to buy up to 300 billion U.S. dollars in long-term treasuries. That added to worries in the value stability of the country's foreign exchange reserves.

Mei said the slower growth in foreign exchange reserves could be conducive to the national economic security because less capital would be exposed to devaluation risks.

"The top priority should be to keep the value of foreign exchange reserves stable," said Yuan. He suggested relevant authorities should keep a close eye on flows of foreign reserves and prevent a similar capital flight that happened after the Asian financial crisis.

(Xinhua News Agency April 11, 2009)

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