POLITICAL ECONOMY

Resources must be the destination for Chinese forex reserves - Central bank official

An official at China's central bank said on Monday that the superpower needs to invest in oil and other resources as part of a drive to diversify out of the dollar

Posted: Monday , 04 Jan 2010

BEIJING (Reuters) - 

China must invest its massive foreign exchange reserves in oil and other strategic resources as part of its drive to diversify away from dollar assets, a central bank official said in remarks published on Monday.

Sheng Songcheng, director of a municipal branch of the People's Bank of China in Shenyang city, said that such investments should be made by professional investment firms, which could purchase forex from the central bank.

China has, to an extent, already been moving in this direction. China Investment Corp, the country's sovereign wealth fund, was relatively aggressive last year in buying into foreign commodities companies. State-owned companies have also pursued a range of mining and oil acquisitions and partnerships abroad.

Sheng played down worries about China's rapid build-up of foreign exchange reserves, saying that this was a natural consequence of economic growth.

"It is true that a surge in foreign exchange reserves will raise pressure for yuan appreciation, but ... a rise in the yuan depends on many other factors," Sheng was quoted as saying by the Financial News, a newspaper published under the central bank.

China's foreign exchange reserves have continued to grow in recent months, albeit at a slower pace than in past years, as it still has a large trade surplus and significant foreign investment.

Its reserves, the world's largest such stockpile, stood at $2.27 trillion at the end of September. Analysts estimated that roughly two-thirds were invested in dollar-denominated assets. (Reporting by Aileen Wang and Simon Rabinovitch; Editing by Chris Lewis)

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