Chinese Reserve Policy

From Simon Derrick, overview of the changes that may take place in China. There is continued pressure for diversification. However, if we move beyond asset classes, it remaisn difficult to remove questions of currency diversification from those of exchange rate peg.

The Bank of New York - Global Markets Website:

"The latest leaks out of Beijing suggest that the next step towards the formation of a new agency to manage the “surplus” portion of China is likely to be taken in the next few weeks. Market News International reported just over a week ago that next months meeting of the National People’s Congress (the nation’s top legislative body), is likely to approve plans to establish a new agency to help manage the reserves. This agency, under the control of the Ministry of Finance (and, reportedly, to be headed by Vice Minister Lou Jiwei), would be in be in charge of purchasing high-yield assets both at home and abroad including resources for China's economic growth and would report directly to the cabinet. A report in the Southern Weekly newspaper indicated that this “State Foreign Exchange Investment Corp” would manage in excess of USD 200 Bn and that the money could be spent on a wide array of domestic and international assets, from oil and gas to financial assets and entire companies. Another USD 100 Bn from the reserves would, reportedly, be allocated to Central Huijin (a division of SAFE).

The report today from Reuters (citing “sources close to the State Council”) that Vice Finance Minister Lou Jiwei is likely to replace Hu Xiaolian as chairman of Central SAFE Investment Ltd., suggests that this plan is well under way. With the report indicating that the cabinet has agreed in principal to the appointment of Lou as head of the new agency it seems the stage is set for announcement after the end of the congress. It also strongly suggests that the bureaucratic wrangling that reportedly had been taking place between the MOF and "