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China’s Gigantic Foreign Reserve Will No Longer Stay with the U.S. Debt

Since last year, China has adopted a new policy of diversification in order to handle the huge amount of its foreign reserve. The latest data shows that China’s foreign reserve is $US 2.8473 trillion. In 2010, China’s foreign reserve increased by $US 448 billion. Therefore, in the short term, China has increased its investment in the national debts issued by South Korea and Japan. As a long term strategy, China is going to put more of its reserve into European countries.

Another notable change in China’s foreign reserve policy is to allow Chinese citizens to invest directly in foreign countries. China is making this policy adjustment because, in recent years, China’s sovereign funds have encountered suspicion and barriers when trying to acquire overseas enterprises. China’s large, state owned enterprises will be the main foreign investors. At the same time, China will provide foreign currency loans to private companies and encourage and support more of China’s private enterprises in acquiring foreign companies.

Source: Xinhua, January 17, 2011