China's Forex Reserves Swell to Record Size

      October 16, 2009 12:23

      China, which holds the world's largest foreign reserves, saw them rise even further to US$2.273 trillion as of the end of September. That is 10 times more than Korea's annual budget this year of W267 trillion (US$1=W1,155). It is also 2.7 times larger than the market capitalization of all of the outstanding shares on the KOSPI and junior Kosdaq, which amounts to W947 trillion as of the end of trading on Thursday.

      Backed by such huge foreign currency reserves, China has been gobbling up global energy and metal resources. The People's Bank of China, the country's central bank, said foreign currency reserves rose 19.26 percent over the past year and grew by $61.8 billion in September alone. Bloomberg on Thursday reported that China's foreign reserves are expected to surpass $3 trillion by the middle of next year.

      "[U.S.] Dollars are widely believed to make up roughly two-thirds of [China's foreign currency reserves]," the Wall Street Journal wrote. "Chinese officials have this year publicly worried about what U.S. fiscal and monetary policies might do to their holdings." But "there is little evidence that dominant position is changing." It said the $141 billion increase in reserves in the third quarter "was substantially larger than China's trade surplus for the quarter of $39.27 billion. Such a gap is usually taken as an indication that money also is coming in from other sources, as investor confidence in China returned."

      China's Commerce Ministry on Thursday said foreign direct investment in September totaled $7.9 billion. FDI, which had been declining for the past 11 months, rose 7 percent in August and 18.9 percent in September.

      Dealers also attributed the increase to a huge influx of so-called hot money anticipating a weak dollar and the appreciation of the yuan.

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