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On the causes of the huge official foreign exchange reserves in China and Countermeasures

Author: XiongZuo WuShuZhuan From: www.yourpaper.net Posted: 2010-06-05 22:00:20 Read:
Paper Keywords: official foreign exchange reserves, upgrading the industrial structure of double surplus
Abstract: up to $ 1.5 trillion in official foreign exchange reserves have attracted domestic and foreign attaches great importance to understand the relevant knowledge is of great significance for improving China's industrial and trade structure. This paper discusses the reasons for the formation of China's huge foreign exchange reserves, and put forward their own views on how the use of foreign exchange reserves.
China's foreign exchange reserves increased significantly since 2001, seems to be becoming more and more of our headache problems. As of the end of June 2007, China's foreign exchange reserves have reached $ 1.3326 trillion, an increase of 41.6%, reaching record highs again, to the first half of this year to reach 1.5 force of one hundred million staggering figure. China's foreign exchange reserves, is continuing the rapid growth.
Of course, ample foreign exchange reserves, is conducive to enhance the country's international liquidity, strengthen the credibility of our government and enterprises to improve domestic and international confidence in the Chinese economy and the Chinese currency; also conducive to respond to emergencies events, guard against financial risks. However, the high foreign exchange reserves will have a negative impact on our economy:
1, increase inflationary pressures, the impact of monetary independence. With the growing number of China's foreign exchange reserves, the central bank in the open market to hedge the pressure growing, the excessive increase of foreign exchange reserves has posed a serious challenge to China's monetary policy.
2, delaying the adjustment of industrial structure and international competitiveness. China's trade surplus mainly from foreign-invested enterprises, processing trade export growth, which could easily lead to China's trade dependence is too high, the lack of sustained export growth momentum and also the impact of the development of the domestic industry is not conducive to promote domestic industrial structure upgrade.
3, an increase of RMB exchange rate appreciation pressures, exacerbated trade frictions between China and its trading partners. Continue to expand the international balance of payments surplus and massive foreign exchange reserves is considered to be the most direct cause of the RMB exchange rate appreciation pressures, the main reason.
Is what led to such a high growth in China's foreign exchange reserves? I believe that in addition to global imbalances, the promotion of speculative capital inflows, the structure of China's foreign exchange reserves single currency, especially the U.S. dollar-based factors, the most fundamental reason is that the "double surplus" situation currently facing.
The so-called double surplus, double surplus refers to the BoP current account and capital projects. In general, both of which will only be a surplus or deficit, and another to basically maintain a balance. In China, this is due to consumption and investment, domestic demand and external demand imbalance. Since the transition of the market system, generally holding the Chinese people rich psychological impulse to invest strongly, investment surge in productivity brought about by the need to consume a certain speed rises to absorb the extra productivity. Distinct urban and rural income gap due to the gap between the rich and the poor, to curb the steady and healthy growth of consumer demand, coupled with a long time by the traditional frugal ideas affect the consumer has been the lack of growth momentum, whether individuals or government consumption rate than savings rates are low, poor, high savings and low consumption phenomenon has led to a serious shortage of domestic demand in China. On the other hand, the 'made in china cheap flag makes our products popular in foreign markets, and the prosperity of foreign demand, domestic relative to consumption of excess production capacity is transferred abroad, which makes the the double surplus increasingly serious problem of

Foreign exchange reserves so hot how to use it? Let's look at our usage. Foreign exchange reserves than gold and silver jewelry can be locked in the closet, can not invest in the domestic securities market, so buy relatively safe, stable and high mobility of foreign government bonds has become a popular choice. The United States is the world's largest economy, the government credit, there is a strong demand for funds, countries are invariably a considerable part of its foreign exchange reserves for investment in U.S. Treasury bonds, China is certainly the case. But taking into account the yield of government bonds, China began to take a more popular approach today - to set up a sovereign wealth fund China Investment Corporation. However, such an investment is still rather being questioned. As we all know, the United States economy into recession cycle, the impact of the U.S. dollar by the subprime also the continuous depreciation of the RMB is expected long-term appreciation. Investment funds in the United States, the rate of return but also net of the impact of the devaluation of the dollar, the investment risk is greatly enhanced. And the strength of the yuan, China's economic fundamentals so that the foreign investment funds are trying to squeeze in China, and yet the money bag to send to the United States population, and the result is very likely return on investment is also no domestic as a rational economic man this choice must be undesirable.
In addition, the newly established China Investment Corporation is a lack of investment experience and the international unspoken rules skillfully use, they can not do, like if the Road Temasek investment guarantee a very high rate of return, before the Virgin single Blackstone The investment was alive or dead is an example. And funding so strong sovereign investment funds big tree attracts the wind, can easily lead to the panic of foreign companies and governments, resulting in unnecessary conflict and passive. Since the establishment of the CIC Western media has been clamoring cast fear white big companies in the world to become shareholders income bag?
To sum up, China's foreign exchange reserve is used only to foreign investment is certainly not enough. About how to effectively manage follow the principle of "secure, flexible, good value, I believe that can be done the way out as follows:
A timely manner to increase the share of gold reserves, optimize the structure of foreign exchange reserves ratio. The past three years, relative to the amount of China's foreign exchange reserves are huge and still growing rapidly, China's gold reserves share not only still very low, the growth rate is also very limited, and the United States, Japan and other developed countries and even some emerging countries in Southeast Asia to strengthen gold reserves in stark contrast. In the case of a weaker dollar, the price of gold steadily, gold is a more effective reserve store of value, but also will help reduce the pressure of RMB appreciation. In addition to gold, but also to strengthen the reserves of petroleum, nonferrous metals and other strategic materials.
To expand the dominance of foreign exchange autonomy. China's foreign exchange governance body is a mandatory foreign exchange settlement system, in the case of today's market economic system continues to improve, foreign exchange surplus gradually to actively promote the reform of the foreign exchange governance system, relaxed and personal degree of freedom in the use of foreign exchange, the increase may hold foreign exchange quota, and gradually shift to the voluntary exchange settlement and sales. This will not only possession of the Department of the people, decomposition of the excessive concentration of foreign exchange in the exchange rate risk of the government, but also facilitate enterprises and individual economic activity, it is the requirements of the market economy.
3 with excess reserves to establish a "Strategic Development Fund. Wo circle invest in China in many areas of strategic risk are far behind the developed countries, relatively low investment in education, health care, social security and other aspects, especially the weak government investment. With the rapid economic growth, China's demand for fuel and energy has also been gradually over domestic storage of natural resources and development capabilities. Its funds to invest abroad, as more efficient building in the country, the establishment of the strategic reserve of education, social security aspects of special funds and oil and other energy, really for the people to do practical things for our country's future.
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