China to Increase Euro Holdings as Dollar Falls

June 1, 2007 (LPAC) -- The Chinese government will increase the ratio of euros in its huge foreign exchange reserves, but has no plans to reduce the proportion of U.S. dollars, which make up the vast proportion of the reserves. The decision to buy more euros would be based on the value of the currency [which has been rising steadily against the collapsing U.S. dollar] and stable EU economic growth, Wu Xiaoling, a vice governor of the Peoples Bank of China, said during an economic forum in Brussels on May 31. Although it is not officially stated, it is unofficially reported that some 70% of China's reserves are in U.S. dollar assets, including U.S. Treasuries.

Wu Xiaoling also emphasized that China would focus on developing its internal consumption and living standards, as the primary means of bringing its huge trade surplus into better balance. China will also gradually increase the flexibility of the yuan exchange rate, Wu said, but as a secondary measure.

Wu also said that the stock market is expanding too rapidly, which regulators want to stabilize. "If the stock market can't operate smoothly, then investors' confidence will be hurt and their consumption will be affected," she said.