Economy

China sees sharp rise in foreign exchange purchase

(Xinhua)
Updated: 2011-03-03 08:32

BEIJING - China's funds outstanding for foreign exchange (FOFE) rose to 23.08 trillion yuan ($3.51 trillion) at the end of January, up 24.39 percent or 501.65 billion yuan from December, according to the People's Bank of China, or the central bank, on Wednesday.

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This meant that the central bank bought 501.65 billion yuan worth of foreign exchange from commercial banks in January. The move follows the introduction of a mechanism to keep the exchange rate stable through injecting yuan into the banking system by buying foreign currencies from commercial banks.

Analysts said that China was facing pressures to prevent hot money inflows due to international liquidity and the expectations for the appreciation of the yuan.

China's trade surplus stood at only $6.45 billion while foreign direct investment was $10.03 billion.

The central bank's rise in foreign exchange purchases was triggered by high global liquidity after the United States' second round of quantitative easing measures announced at the end of last year, said Guo Tianyong, a professor with the Central University of Finance and Economics.

The central bank's foreign exchange purchase hit a 33-month high at 530.18 billion yuan in October last year. But it began decreasing soon after to 319.64 billion yuan in November and 403.32 billion yuan in December.

China is attractive to international capital because of its economic performance and the anticipated appreciation of the yuan, said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.