China officials have defended the central bank's policy of buying surplus US dollars to prevent the yuan appreciating, a strategy which foreign bankers say will push its reserves to US$120 billion to $130 billion within a year.
Director of the State Administration of Foreign Exchange Control under the central bank, Zhou Xiaochuan , said the policy was sound.
'It is a correct policy choice for the central bank to purchase surplus hard currencies to stabilise the exchange rate of the yuan,' he said.
The policy's benefits - improving China's international credibility and improving public confidence in the economy - outweighed its costs, he said.
China's reserves reached a record $105 billion at the end of last year, up $31.4 billion from a year earlier, and its foreign debt was $116.28 billion, up $9.69 billion for the year, official statistics showed.
The reserves rose due to a trade surplus last year of $12.24 billion, foreign direct investment of more than $40 billion and central bank purchases of surplus dollars in the foreign exchange market.
