China's creation of a company to invest part of its US$1 trillion in foreign currency reserves will have no impact on Beijing's huge holdings of US dollar-denominated assets, Chinese Premier Wen Jiabao (溫家寶) said yesterday.
Speaking at a news conference, Wen also said Beijing must improve stock market supervision and build a mature financial system. His comments came two weeks after a plunge in Chinese stocks triggered a global selloff, but Wen did not mention that market turmoil.
The premier's comments reflected China's efforts to harness its 10 percent-plus annual economic growth more effectively and reassure the world about its intentions.
The government said last week it was creating a company to make more profitable use of its reserves, up to 70 percent of which are believed to be held in safe but low-return US Treasuries and other US dollar-denominated assets.
Some economists suggested that could affect Beijing's purchases of Treasuries, which helps to finance the US government budget deficit.
"It is true that in China's foreign exchange reserves, US dollar-denominated assets account for a large proportion," Wen said. "I can assure you that by instituting such a foreign exchange company, it will not have an impact on the US dollar-denominated assets."
Wen did not respond directly when asked how the company will make investments or give any other details.
China's reserves have surged as surging exports bring in a flood of foreign currency, forcing the central bank to drain billions of dollars a month from the economy by selling bonds in order to reduce pressure for prices to rise. The reserves are growing by about US$20 billion a month.
"How to properly use such a huge amount of foreign reserves has become a new problem facing us," Wen said.
Wen also stressed Beijing's desire to develop Chinese financial markets as a tool to finance growth.
"Our goal is to build a mature capital market," he said.
The government must improve the quality of publicly traded companies, make the market "open, fair and transparent'" and improve oversight, the premier said.
"We also need to encourage and do a good job in the timely disclosure of information in the stock market," Wen said.
Wen also said the government will fight corruption by making regulatory decisions more open, reducing chances for corrupt officials to manipulate the approval process.
"We need to reduce the number of matters that require administrative review and approval,'' the premier said.
Also yesterday, China's legislature passed a landmark law to protect private property, rejecting claims it could widen a growing wealth gap, and a measure to end three decades of blanket tax breaks for foreign investors.
The tax measure unifies rates paid by most foreign and Chinese companies at 25 percent of profits.
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