Reply #65: Beijing to diversify investment strategies

[54anickel]

http://www.ft.com/cms/s/07448d3e-a985-11db-9185-0000779e2340.html

China is to diversify the use of its swelling foreign exchange reserves, a policy change that is likely to mean a rise in investment in overseas securities and more purchasing of foreign technology and raw materials.

Wen Jiabao, the premier, said after a top-level meeting on finance reform at the weekend that Beijing should improve the management of its foreign reserves and explore ways to diversify their use.

The policy switch opens the way for China, which has been largely passive in managing its money, to establish an agency – akin to Singapore’s Government Investment Corporation and other state investment agencies – to handle a portion of its reserves, already the world’s biggest.

China’s foreign reserves surpassed Japan’s last year to become the world’s largest and reached $1,066bn by the beginning of 2007. They could double within four years if the country’s trade surplus continues to expand and Beijing’s currency policy stays the same.

The government announced on Sunday that it had injected $4bn from the reserves into China Reinsurance (Group) last year to recapitalise it before a possible market listing.

Mr Wen said there were still many problems in the financial sector, including poor corporate governance and poorly managed institutions, and, in some areas, an unstable basic structure.

Mr Wen’s wording on changing the management of foreign reserves was deliberately vague but clear in setting a new path for policymakers.

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China’s multibillion dollar question
http://www.ft.com/cms/s/cf2b2a5c-a989-11db-9185-0000779e2340.html

With a vaguely worded statement from Wen Jiabao, China’s premier, at the close of a weekend meeting in Beijing on finance policy, the die has been cast for a momentous change in the management of the country’s massive foreign exchange reserves.

Mr Wen said the management of the reserves, the world’s largest at more than a thousand billion dollars, should be improved and the channels through which they are invested diversified.

Such remarks might seem to be little more than common sense but, against the backdrop of an intense, yearlong debate in China about how to use the money, Mr Wen’s remarks represent a decisive policy shift.

Everyone from senior leaders to local policy entrepreneurs has been floating ideas about how to use the money, ranging from funding education and health systems to buying foreign oil and stocks. Such policy proposals can now be put forward for possible adoption.

Once a plan has been implemented, in five to 10 years, Beijing could preside over one of the world’s largest and most powerful investment agencies.

The debate thus far has irritated some economic policymakers who testily point out that the reserves cannot simply be spent as they represent assets on the central bank’s balance sheet.

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