China’s exports surplus that pushed its foreign exchange reserves 'beyond the reasonable requirements' to $3 trillion in January-March quarter poses a risk to the country's economy, experts have warned.
China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Sunday.
The amount of foreign exchange reserves should be restricted to $800 billion-1.3 trillion, Tang told a forum in Beijing, saying that the current reserve amount was way too high.
China's foreign exchange reserves increased by $197.4 billion in the first three months of this year to $3.04 trillion by the end of March.
Tang's remarks echo the sentiments of China's central bank governor Zhou Xiaochuan, who was quoted by Xinhua news agency on Monday, saying that China's foreign exchange reserves "exceed our reasonable requirement".
The government should upgrade and diversify its foreign exchange management using the excessive reserves, he said.
Xia Bin, a member of the monetary policy committee of the central bank, said that $1 trillion of foreign reserves would be sufficient for China.
China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy, he said.
Tang suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
China, which holds the world’s highest forex reserves, is also the biggest holder of spiralling long-term US debt at $1.16 trillion of treasury holdings in December 2010; any credit downgrade as threatened by rating agency Standard and Poor's recently will bring down value of Chinese assets.
As the US dollar was on downward trend with Yuan appreciating, China looked to safe investments to reduce its dollar holdings.