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China's foreign reserves rise to $2.13 trillion

China's foreign reserves rise to $2.13 trillion

China's foreign reserves rose to $2.13 trillion at the end of June despite a trade slump, data showed Wednesday, and analysts said that suggested the flow of foreign money into stocks and real estate was rising.
The reserves, already the world's largest, expanded by 17.8 percent or $186 billion over the first half of the year, the central bank said. It said the increase in June alone was $42 billion _ nearly equal to growth for the full final quarter of last year.
China's reserves have ballooned as the central bank buys up dollars generated by its huge trade surplus and influx of investment.
The latest upturn, which came despite declines in June trade and foreign direct investment, suggested more speculative "hot money," some of it brought back from abroad by Chinese investors, was flowing into stocks and real estate, analysts said. Beijing wants to rein in such flows for fear they will fuel speculative bubbles.
"This surge was probably driven by portfolio inflows and likely contributed to the rally in stock and property markets," said Citigroup economist Ken Peng in a report. Standard Chartered economist Stephen Green saw "numerous signs of bubbles forming."
China's exports fell for an eighth month in June, plunging 21.4 percent from a year earlier, and its global trade surplus narrowed to just $8.2 billion, the second-smallest gap in many years. The Commerce Ministry reported Wednesday that foreign direct investment fell again in June, declining 6.8 percent from a year earlier to $9 billion.
China's reserves are more than double those of No. 2 reserves holder Japan, which has $988 billion.
Chinese leaders have expressed concern about the stability of the U.S. dollar and the value of Beijing's vast holdings of American government debt. China is Washington's biggest foreign creditor and is believed to keep almost half of its reserves in U.S. Treasurys and notes issued by government-affiliated agencies.
Despite such concern, the U.S. government says Beijing is continuing to buy substantial amounts of Treasurys.
China added just $7.7 billion to its reserves in the first quarter of this year as trade and investment plunged due to the global financial crisis. That compared with a $45 billion increase in the final quarter of last year.
The growth in reserves over the first half was down by $95 billion from the expansion in the same period last year, the central bank said.
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Associated Press researcher Bonnie Cao in Beijing contributed to this report.
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http://www.pbc.gov.cn