January 7, 2006	Saturday	Zilhaj 6, 1426

BEIJING, Jan 6: China has suggested it may diversify its foreign reserve holdings away from a current heavy focus on the US dollar although analysts said Friday Beijing does not intend a major change in policy.

We will perfect the management of our foreign exchange reserves and actively explore new ways to use our reserve assets even better, State Administration of Foreign Exchange (SAFE) chief Hu Xiaolian said in a statement late Thursday.

We will further improve the currency and asset structure in the foreign exchange reserve portfolio and continue to broaden the investment channels for our reserves.

The statement, posted on SAFE’s website, said the diversification would serve the twin purposes of strengthening risk management and boosting the yields of forex reserve assets.

China’s foreign exchange reserves, the second-largest in the world after Japan, rose to 794.2 billion dollars at the end of November, according to previous reports in the state media.

Some economists estimate they will soon be even bigger than Japan’s, topping one trillion dollars by the end of this year, and so China may be wanting to signal its growing clout, according to analysts.

This is the first time China has come out and said ‘we’re looking at diversification’. It’s an important admission, said Callum Henderson, head of foreign exchange strategy at Standard Chartered in Singapore.

It’s also an important message to the US. It’s a reminder of who holds the cards in terms of foreign exchange reserves — not just Japan, but China.

With most of their reserves denominated in dollars, China and its Asian neighbors now hold the greatest sway ever over the US unit’s value.

That makes any decision to lower the dollar’s weight in their holdings important to currency markets.

It’s very difficult for them to do anything too significant in the short-term, Attrill said.

He noted that a policy-directed sell-off of the dollar could see the value of remaining reserve assets denominated in the US unit plummet.

(China) is talking about perfecting the reserve management system. I think this is an ongoing process rather than a structural change in their attitude to forex reserves, Attrill said.

US Treasury Secretary John Snow said on Thursday that it was not in China’s interests to make any major sudden moves that would see the value of the dollar plummet.

Remember, people who own US securities have an interest in seeing that paper, whether it’s equities or debt paper, sustain its value, Snow said.

If the value of our paper were to fall, they would find they had a large loss of net wealth. It’s not in their interests.—AFP