With US$1 trillion in reserves, Beijing must find new route to recycle funds
The central government is considering establishing a national investment company modelled on Singapore's Temasek Holdings to recycle China's rapidly growing foreign exchange reserves, reducing appreciation pressure on the yuan and soaking up liquidity, according to a senior government adviser.
'This company will be established mainly to invest in overseas assets but can also invest domestically,' the official said yesterday.
An outline of the company has already been drawn up by a working group of government advisers who visited Singapore recently on a fact-finding mission.
Under the proposal, the firm will raise capital by issuing yuan-denominated bonds, using the proceeds to buy foreign exchange from the central bank which will then be invested in offshore fixed-income and equity markets, property and direct equity stakes in companies, but not directly in commodities, sources said.
It is most likely to work alongside Central Huijin Investments, which was established in December 2003 to recapitalise teetering mainland banks and other financial institutions with foreign exchange reserves, and the State Administration of Foreign Exchange, which implements currency policy.
But it can also be formed through a reorganisation of Central Huijin, the sources said.