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China plans forex-managing entity

(Dow Jones)
Updated: 2007-03-03 16:47

Wu Xiaoling, vice governor of the People's Bank of China or the central bank, said China is planning a forex-managing entity to manage the huge amount of foreign exchange reserve in Beijing March 3, 2007. [CIIC file]

A top central bank official said Saturday China has begun preparations to create an entity that will manage China's massive foreign exchange reserves.

Vice Governor Wu Xiaoling said the entity will be related to Central Huijin Investment Co, a state agency that has invested foreign exchange reserves to recapitalize domestic financial companies.

China had $1.07 trillion in forex reserves as of the end of 2006 and has actively been exploring ways to diversify its holdings.

In remarks on the sidelines of the annual Chinese People's Political Consultative Conference, which opened Saturday, Wu said China was mulling creation of a fiscal stability fund.

No timetable was provided for creating the entity to manage the foreign exchange funds. Wu said the timing will depend on progress of the preparations.

Asked whether the forex-managing entity will be modeled after Singaporean investment agency Temasek Holdings, Wu said many options are being considered but declined to elaborate.

There has been speculation China would widen the yuan trading band as it deals with the problem of excess liquidity, but Wu said the issues are being viewed separately.

"The liquidity issue doesn't include the trading band issue," Wu said.

Wu said China should boost the development of corporate bonds but the size of the bonds should depend on how much corporations and the markets can handle.

"The government shouldn't set a specific limit," Wu said.