Beijing to help firms invest overseas

Plan, announced by central bank chief, may ease pressure on the yuan to rise


BEIJING - CHINA will support efforts by domestic companies to invest abroad, central bank governor Zhou Xiaochuan said, a process that may help lessen pressure on the nation's currency to rise.

The efforts to assist local businesses to increase their overseas investments will take time to achieve results, Mr Zhou said, without elaborating on the steps the government will take.

His comments follow the government's confirmation last Friday that it is setting up a fund that may invest in firms in a similar manner to Singapore's Temasek Holdings, as part of efforts to better manage its US$1.07 trillion (S$1.53 trillion) of currency reserves.

'We need to adjust our management of foreign reserves because of the large size,' Mr Zhou said at the Chinese legislature in Beijing. 'Because we are investing in more longer-term instruments, we need to pay attention to the ability to retain value and therefore the longer-term returns.'

The central bank has raised interest rates and asked lenders to set aside more in deposits to ease liquidity that stems from a record trade surplus and rising investment.

China will gradually increase the flexibility of the yuan and accelerate financial reforms, the central bank said separately in a statement yesterday. The yuan has risen by about 7 per cent since a decade-long peg to the US dollar was scrapped in 2005.

The central bank buys and sells its currency to limit the gains and protect exporters, drawing criticism from some United States lawmakers who have asked for tariffs to be placed on Chinese goods.

The currency was at 7.746 against the US dollar yesterday in Shanghai.

China will keep buying treasuries, central bank vice-governor Wu Xiaoling said on Sunday.

The US dollar slumped by1 per cent against the euro in the week ended Nov 11 after Mr Zhou said he plans to diversify holdings.

Chinese organisations invested US$9 billion overseas in each of the last three years, estimated

Mr Donald Straszheim, vice-chairman of Roth Capital Partners, in a research note to clients last month. That compares with the US$200 billion China's new agency will have to manage, he said.

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'Because we are investing in more longer-term instruments, we need to pay attention to the ability to retain value and the longer-term returns.'
MR ZHOU, following China's confirmation last week that it is setting up a fund that may invest in firms, much like Temasek