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Forex Reserve to Have More Euros
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China plans to increase the ratio of Euros in its foreign exchange holdings given the stability in the European Union (EU) economic growth and in the value of the European single currency, said a central bank vice governor on Thursday.

However, China has no plans yet to reduce the proportion of US dollar assets in its coffers, Wu Xiaoling told an economic forum in Brussels, the Shanghai-based Oriental Morning Post reported Friday.

China's forex reserves reached US$1.2 trillion at the end of March and about 70 percent of the holdings are believed to be in US dollar assets, especially US treasuries.

To address the trade imbalance with western countries, China could take measures to stimulate domestic consumption and improve the flexibility of the Chinese currency.

"If we intend to solve the problem of imbalanced trade, we will first increase the flexibility of the yuan exchange rate, but that will not be the main means," Wu said.

It is more important for China to increase its citizens' incomes and boost domestic consumption through the improvement of social security networks, according to Wu.

She went on to say China will not bow to outside pressure and accelerate the revaluation of the yuan.

If China's exchange rate reforms go smoothly, then the appreciation of the yuan will continue, the central banker said. However, if the country's economy runs into problems and the exchange rate reforms stagnate, then the Chinese currency risks depreciation, Wu noted.

On the stock market, she said it is growing too fast and regulators hope they can develop it in a more stable way. "If the stock market can't operate smoothly, then investors' confidence will be hurt and their consumption will be affected."

On top of a 130 percent rally in 2006, China's benchmark Shanghai Composite Index has surged more than 60 percent so far this year before a 6.5 plummet Wednesday that was caused by a hike of stamp tax to 0.3 percent from 0.1 percent.

( June 1, 2007)

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