China forex returns to improve

Beijing - China's foreign exchange regulator pledged on Monday to improve the long-term returns of its $2.13 trillion in foreign exchange reserves.

Authorities also will continue to try to prevent large amounts of funds from flowing in and out of the country, the State Administration of Foreign Exchange said in a statement.

"With the precondition of ensuring security and liquidity, we will increase the long-term profitability of reserve assets," the agency said, without detailing how it planned to achieve that goal.

The statement was posted after Chinese shares closed down 6.74% on Monday - the biggest single-day percentage fall in 15 months.

The agency also said it would "improve" rules for its Qualified Domestic Institutional Investor and Qualified Foreign Institutional Investor programmes to provide more channels for investors at home and abroad.

The statement said the decisions were made at a recent meeting in Shenyang, in northeast China, attended by the agency's newly appointed director, Yi Gang, and deputy director, Deng Xianhong.

China's foreign exchange reserves, already the world's largest, grew by $185.6bn in the first six months of 2009, a rise of 17.8% year-on-year, according to the latest figures from the central bank.

The nation's forex reserves have ballooned in recent years, fuelled by robust foreign investment, a hefty trade surplus and inflows of "hot money" or short-term speculative funds in search of quick profits.

The inflow eased as the economic crisis hit late last year, but the latest figures indicated the trend resumed in early 2009 as the economy improved.

China has invested a large part of its vast reserves in US dollar assets, such as safe but low-yielding US Treasury bonds, but amid the financial crisis Beijing has tried to diversify its investments to improve its returns.

- AFP