China's foreign currency reserves ballooned 34 per cent year on year to US$242.76 billion by the end of last month. The faster-than-expected increase, underlining robust exports and predicted stronger overall economic growth this year, paved the way for more exchange rate flexibility and relaxed overseas investment rules, economists said. The reserves expanded by a monthly average of US$5.1 billion in the first half, more than doubling the US$2.54 billion reported in the same period last year, People's Bank of China (PBOC) governor Dai Xianglong said on Wednesday. Deutsche Bank senior economist Ma Jun said: 'That's mainly attributable to two things. The first being strong export growth, hence trade surplus expansion. Then there is a continuing inflow of foreign investment.' Exports surged 13.2 per cent year on year to US$115.99 billion in the first five months, against 11 per cent growth in the same period last year, according to a Xinhua report yesterday. China raked in a trade surplus of US$10.43 billion in the first five months, larger than the US$7.32 billion booked in the same period last year, Xinhua said. Foreign direct investment rose 12.38 year on year in the five months to US$16.9 billion over a year earlier, the International Finance News reported. Xinhua quoted domestic experts as predicting a 10 per cent to 12 per cent full-year growth in exports, with import increases reducing full-year trade surplus to US$15 billion to US$20 billion, against last year's US$22.5 billion. However, Morgan Stanley economist Andy Xie Guozhong predicted an 18 per cent full-year export surge. Exports are seen as a prime engine behind China's gross domestic product growth this year, estimated at 7.5 per cent by Mr Xie, and 7.7 per cent by Mr Ma. The official growth target is 7 per cent, while the Chinese economy grew an actual 7.3 per cent annually last year, and 7.6 per cent in the first quarter of this year. Bulging hard-currency reserves would also strengthen calls to further relax China's rigid foreign exchange control, Mr Ma said, leaving Beijing room to widen the yuan's trading band against the US dollar, currently set at 0.02 per cent up and down. While a wider trading band might slow expansion of China's foreign currency reserves, it could also cushion the yuan from heavy devaluation pressure during the next financial crisis or shield mainland exports from the impact of devaluation of other currencies, Mr Ma said.