China foreign reserves to hit 1000 billion

China’s foreign exchange reserves will hit US$1,000 billion by June of 2006 if they keep growing at their present rate, according to a Shanghai economist.

They were up by more than US$100billion in the first six months of 2005 to a total of US$711 billion, twice the rate of its increase in foreign currency holdings in 2004.

This rapid increase has to do with a growing trade surplus and strong foreign investment.

The increase heightens pressure on China’s central bank to control inflation and the monetary supply and does nothing to quiet the controversy over whether or not China should revalue its currency.

Domestic conditions have lessened internal pressure to revalue, but at the same time foreign pressure to revalue have increased.

Another factor in the build-up of foreign currency in China has been the inflow of speculative capital inflows counting on such a revaluation of the renminbi, but the influx of so-called “hot-money” seems to be decreasing according to one analyst.

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