China officially confirms new agency to manage foreign reserves

China has announced that it is setting up a new investment agency to gain higher returns on its foreign currency reserves of more than $1 trillion, the largest stockpile in the world. Chinese finance minister Jin Renqing said that China will establish a body to manage a portion of its $1,000bn-plus foreign reserves. Though the speculations in the international market were already taking rounds over this decision; however the recent announcement marked the first top-level confirmation of plans for a new state investment agency. Moreover, the finance ministry and the People’s Bank of China, the central bank, have been at loggerheads over the structure of any new agency and its precise responsibilities. In the mean time the finance minister announced that the State Council has already made research into separating the management of normal foreign exchange reserves and a portion allocated for investment and a new company is already in process to be launched for this purpose. Jin Renqing has not divulged any details of how much money the fund would manage, let alone how it might invest, however he indicated that Singapore’s state-owned Temasek investment company would be one of its models. The new company will be under the direct leadership of the State Council, or the cabinet, instead of the Finance Ministry as it was reportedly to be, Jin said. As a matter of fact, China has been seeking more avenues to relax the pressure generated by rising foreign exchange reserve. In its one move, it has allowed businesses to keep a larger share of their foreign exchange income and thereby encouraging financial investment abroad in the form of qualified domestic institutional investors.

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