China should use its massive foreign exchange reserves to import resources and consumer products from countries like the United States in order to reduce the oversized amount, People’s Daily reported Monday, citing Xie Taifeng, dean of the School of Finance at the Capital University of Economics and Business.
Opinions on foreign trade released by the General Office of the State Council earlier this month also made a similar call, noting that the country should acquire more of the resources it lacks and increase imports of basic necessities and petroleum.
Xie also supported the country’s efforts to shift from an export-oriented and investment-driven economy to a consumption-led model, saying that otherwise, foreign reserves will continue to rise.
Investment in foreign reserves should be diversified instead of focused on US government bonds. China can also increase the proportion of gold in the portfolio as the metal is the best tool to hedge against US dollar depreciation, he said.
During his visit to Africa earlier this month, Premier Li Keqiang said having too much foreign reserves is a huge burden, as it becomes the base currency and gives rise to inflation.
He said an imbalanced trade will put a lot of pressure on the country’s macroeconomic regulation and control.
According to the latest data of the central bank, the country’s foreign exchange reserves reached US$3.95 trillion by the end of March, accounting for one-third of the world’s overall foreign reserves.
If the situation continues, China’s foreign exchange reserves will top US$4 trillion by the end of this year, the report said.
– Contact us at [email protected]