New investment body will not affect dollar holdings, China says

Mar 16, 2007, 5:55 GMT

Beijing - The creation of a new government body to invest part of China's 1 trillion dollars of foreign-currency reserves will have no major impact on its holdings of US dollars, Premier Wen Jiabao said Friday.

'It is true that in China's foreign-exchange reserves, US dollar-denominated assets account for a large proportion,' Wen told reporters at the end of the annual session of the National People's Congress, China's nominal parliament.

'I can assure you that by instituting such a foreign-exchange company, it will not have any impact on the US dollar-denominated assets,' he said.

The Chinese government plans to set up its own agency to diversify the investment of its currency reserves for higher returns and to invest in companies much like the Singapore government's Temasek Holdings.

Wen said Friday that the government must also improve public awareness of the risks involved in stock-market investments and improve the system of disclosure by listed companies.

Some analysts have speculated that China could reduce dollar-denominated holdings as its diversifies investments under the planned new body, which would likely have a strong impact on the US currency.

More than half China's currency reserves are believed to be held in low-yield US Treasury bonds and other dollar-denominated assets.

A state media report on Thursday said a former vice minister of finance is already in charge of setting up the investment body.