BEIJING (AP) — China's foreign reserves have soared to nearly $3.2 trillion as Beijing intervened in currency markets to control its yuan despite pledges to allow more flexibility.
The reserves rise as Beijing buys foreign currency to counter upward pressure on the yuan's exchange rate due to an influx of export revenues and investment. Washington and other trading partners complain those controls are swelling China's multibillion-dollar trade surplus and might be hampering a global recovery.
The reserves rose 30.3 percent over a year earlier to $3,197.5 billion as of the end of June, the central bank said in a quarterly report released Tuesday. That was an increase of $157 billion over the past three months.
Washington and other governments say the yuan is kept undervalued, giving Chinese exporters an unfair advantage and hurting foreign competitors at a time when other economies need to create jobs amid weak global demand.
Some U.S. lawmakers want sanctions on China if Beijing fails to act. Pressure for such action abated while the two governments cooperated to end the global crisis but demands have revived as trade recovers.
Beijing promised last year to allow more exchange rate flexibility but analysts expect the yuan to be allowed to rise by only about 3 to 5 percent a year against the dollar.
In a report in February, the U.S. Treasury complained the pace of revaluation was too slow and said more rapid appreciation was required.
The International Monetary Fund said in April that unless Beijing allows a more market-driven exchange rate, the global recovery "will stand on increasingly hollow legs."
The rise in China's reserves usually is driven by its trade surplus but analysts say another force fueling the latest increase is an influx of foreign capital due to relatively robust Chinese growth amid global gloom.
China recorded a rare trade deficit of just over $1 billion for the first quarter of this year and a surplus of just $44 billion for the first half.
In freer trading, that flood of cash would push up the yuan's value, making Chinese exports more expensive abroad. Chinese officials have warned against allowing the currency to rise too quickly for fear of hurting exporters and wiping out jobs.
The makeup of China's reserves is secret but Beijing is believed to keep more than half in Treasury securities and other U.S. government debt.
That has fueled anxiety among Chinese officials about the safety of their holdings. They have repeatedly appealed to American leaders to avoid steps that might erode the value of the dollar and China's U.S. assets as it tries to revive sluggish economic growth.
The government has started to diversify its reserves, trying to earn a better return by putting some money into agencies that invest in stocks and other foreign assets.
- Treasury securities
- exchange rate flexibility