WSJ: "China's foreign-exchange reserves jumped more than $200 billion in 2004 to reach $609.9 billion at year end, as speculators betting on a rise in the local currency's value added to the effect of a widening trade surplus.
Last year's huge increase was the biggest surge in China's reserves in any single year -- indeed, 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, almost certainly will add to pressure on Beijing to let its currency appreciate, even though much of the increase was the result of speculative inflows betting on just such an outcome.
The figures, disclosed to Dow Jones Newswires by a Chinese central bank official yesterday, 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.
Adding steadily to Beijing's money pot are China's robust exports. Yesterday, China's Ministry of Commerce reported exports rose 35.4% to $593.36 billion in 2004. That, in turn, pushed the country's full-year trade surplus to $31.98 billion, up 26% from 2003, despite rising import costs. Foreign direct investment, a further source of reserves, reached $57.55 billion in the first 11 months of the year, surpassing the $53.5 billion recorded for all of 2003. The full-year investment figure hasn't been announced.
Much of the additional reserves, some $95 billion, came from so-called hot-money inflows, says Dong Tao, chief Asia economist for Credit Suisse First Boston. These swell the reserves because China, to maintain its currency peg to the U.S. dollar, buys foreign currency that enters the country in exchange for yuan."
