Sun, May 07, 2006 - Page 11 News List

China hopes to cut forex reserves, finance official says

AFP , HYDERABAD, INDIA

China's central bank is seeking to cool down overheating economic sectors such as real estate as well as cut massive foreign exchange reserves, a top government official said yesterday.

The statement by Chinese Vice Minister of Finance Li Yong (李勇) at the annual Asian Development Bank meeting in Hyderabad came as he said economic growth in this year could hit 9.5 percent without new fiscal and monetary steps.

The concern about overheating comes after the economy expanded by a faster-than-expected 10.2 percent in the first quarter over the same period the previous year, after posting a rate of 9.9 percent for all of last year.

"During the first quarter of 2006 we have tried to balance investments in certain sectors," the minister told delegates.

"These sectors such as real estate and steel became overheated in 2005. Our central bank is trying to cool down overinvestment in these sectors," he said.

Housing has become so expensive in China that seven out of 10 urban families cannot afford their own homes, the state-owned Xinhua news agency said.

Last month, the People's Bank of China boosted the one-year benchmark lending rate by 27 basis points to 5.85 percent to brake credit and control "excessively fast" release of bank loans.

It forecast growth of 8.9 percent for this year.

Analysts said the decision to raise interest rates for the first time in 18 months was only the first in a series of measures aimed at preventing the country's booming economy from overheating.

"We will make adjustments [in the interest rate] if it is appropriate. We will gradually adjust the rate," Li said.

Li added that China's foreign exchange reserves had increased dramatically and "personally I do not like that ... foreign exchange reserves will be reduced to a certain extent."

He did not say by how much.

China's foreign exchange reserves, the world's largest, hit US$875.1 billion by the end of March, the central bank said.

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