China's foreign exchange reserves tpss $1.905 trillio

BEIJING -China's foreign exchange reserves rose to $1.905 trillion at the end of September, the central bank announced Tuesday.

Reserves grew by $377 billion over the first three quarters of the year. That is $10 billion more than the growth of $367 billion in the first nine months of 2007.

But the figures appeared to show a gradual slowdown in the rate of accumulation, a possible sign of economic jitters as the global financial meltdown begins to impact on China.

While reserves registered an average of about $44.5 billion per month over the first eight months, they grew by just $21.5 billion last month, according to the bank's figures.

The reason for the gap wasn't clear: Chinese customs on Monday said China's trade surplus in September hit a new monthly high of $29.3 billion, with both imports and exports growing at more than 21 percent over the same month last year.

That would appear to point to shortfalls in other sources of foreign exchange such as direct foreign investment or the outflow of so-called "hot money" - speculative money that had been targeting gains in the local currency.

China's currency, the yuan, has weakened against the dollar in recent weeks after gaining about 20 percent since Beijing revamped its foreign exchange trading system in July 2005.

Analysts believe China holds up to 70 percent of its foreign reserves in U.S. dollar-denominated assets, including Treasury securities and debt issued by other government agencies such as Fannie and Freddie.

Chinese investors hold a total of $376 billion in U.S. government agency debt, according to Moody's Economy.com.

Economists have warned export growth could slow radically however as demand slips in the key European and U.S. markets as a result of the global credit crisis.

Despite the strong trade showing, China's leaders have twice cut interest rates in the past two months and this week will increase the pool of money available for lending by reducing the amount Chinese banks must hold in reserve by a half percentage point to 16 percent.

A 5 percent tax on interest on bank deposits was also suspended and rebates restored to encourage exports. Economists expect additional measures including more tax reductions and a government stimulus plan to boost growth.

With housing prices cooling and fears of higher unemployment, economists have cut growth forecasts for China this year to as low as 9 percent, down from last year's 11.9 percent.

Among signs that the economic pain is being to bite, more than 52 percent of China's toy makers for export have been forced to close down this year as a result of higher labor costs and overheads, a stronger currency, and the elimination of export tax rebates.

(Forbes)