China is considering using more of its $2.3 trillion foreign exchange reserves to buy assets overseas, but it is not likely that the country will diversify away from buying US Treasury bills, experts said.
Jiang Jianqing, chairman of the Industrial and Commercial Bank of China (ICBC), the world’s largest bank by market value, said Tuesday that China should give a chunk of its bulging foreign currency reserves to its commercial banks so that they have more financing power to support firms going abroad.
“If we could make a small step forward, Chinese companies would take a big step in going abroad,” he told a forum in Beijing organized by a research institution under the central bank.
Meanwhile, the Ministry of Commerce said in a press release on its website Tuesday that it will actively support qualified enterprises looking to go abroad next year, keeping a brisk and steady outbound investment pace.
From January to September, aggregate non-financial outbound direct investments (ODI) totaled $32.9 billion, up 0.5 percent over the same period last year, with overseas mergers and acquisitions making up 43.5 percent of the total investments, according to the ministry.
The ministry expects the ODI to reach $42 billion by the end of the year.
China, the largest buyer of US T-bills, kept its holdings in October flat at September’s level of $798.9 billion, and Zhu Min, deputy governor of the People’s Bank of China, said Thursday that it is getting harder for foreign governments to buy US Treasury bills because of the shrinking supply of US dollars.
However, the country is not likely to use ODI or other methods to replace its investment in American bonds, as ODI is insignificant compared with the accumulated funds in Chinese foreign exchange reserves, said Lu Ting, an economist at Bank of America Merrill Lynch.
In the first nine months, Chinese foreign exchange reserves increased $326.6 billion to stand at $2.3 trillion in September, according to the State Administration of Foreign Exchange.
On an annualized basis, the accumulation is close to the 2007 peak of $461.9 billion.
Yu Yongding, a member at the Chinese Academy of Social Sciences, said selling off the T-bills in a big way is not a realistic option because it would hurt China itself.
Yu said the root cause for the rapid foreign exchange reserve increase is the so-called twin surpluses, which refers to capital account and current account surpluses.
He suggested the country make its foreign exchange rate more in line with market conditions and increase outbound investments so as to reduce the accumulation of foreign exchange rerserves.