China's foreign exchange reserves rise

by: Ezra Marbach

The Wall Street Journal Online reports that China's foreign-exchange reserves jumped more than $200 billion to $609.9 billion by the end of 2004, as speculators betting on a rise in the local currency's value added to the impact of a widening trade surplus.

Last year's huge increase was the biggest jump in China's reserves in any single year. It was bigger than China's entire reserves until 2001. The gain of $206.7 billion, almost half of which was registered in the last three months of the year, will almost certainly add to pressure on Beijing to let its currency appreciate, even though much of it was the result of speculative inflows betting on just such an outcome.

The figures would have been even higher had China not used $45 billion in reserves to recapitalize two huge banks last year. China's foreign reserves constitute the second largest such stash in the world behind Japan's.