China reassures on dollar strategy

By Terence Poon
Dow Jones Newswires
via The Wall Street Journal
Saturday, December 5, 2009

http://online.wsj.com/article/SB125997791348677673.html

BEIJING -- China sought to reassure the world that it is taking a conservative approach to managing its massive foreign-exchange reserves, with officials saying it hasn't made big changes to its strategy and the dollar remains a central asset.

The statements by a senior regulator, later supplemented by a book published by the State Administration of Foreign Exchange, seem intended to reassure investors that Beijing isn't selling its vast holdings of U.S. Treasurys, despite worries the dollar is likely to depreciate.

China holds the world's biggest reserves of foreign currency -- $2.27 trillion at the end of September -- and so is watched by global investors concerned about its moves in financial markets and by Chinese citizens worried about their nation's wealth.

"The composition remains as it was before. There is no major change" in the reserves, said Wang Xiaoyi, vice director of SAFE, which oversees the reserves. "We are not making any big adjustments in direction. Our operations are still as usual, meaning they follow the existing forex reserves management goal," he said on the sidelines of an economic forum in Beijing.

China has repeatedly said it follows the principles of keeping reserves safe and liquid, while seeking to increase their value.

Hours after the forum, SAFE posted a Chinese-language book about foreign-exchange issues on its Web site. The normally publicity-shy organization said the unusual move was an attempt to increase transparency on how it manages its foreign-currency holdings.

"A stable, diversified structure of currencies, with the U.S. dollar as the main component but with some appropriate diversification, is able to meet our needs of external payments and asset allocation," SAFE said in a chapter of the book on reserve management. It didn't give precise details on how China's reserves are invested.

Mr. Wang said the "depreciation of the U.S. dollar is a long-term trend." In the near term, however, the dollar's key role as the global reserve currency won't change, SAFE said in the book.

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