China promises not to slash $-assets

China has pledged not to sell large amounts of US dollar-denominated assets while diversifying its record foreign exchange reserves.

People's Bank of China, the apex bank, said it will mainly address the issue of newly-added reserves by widening the foreign currency investment channel, and reaffirmed the importance of its US dollar-denominated assets.

Chinese officials have said the country will diversify part of its foreign exchange reserves, which amounted to a record $1.02 trillion by the end of March. The US dollar-denominated assets will remain an important part of China's outbound investment, the bank said in its monetary policy report for the first quarter, which was published yesterday.

The assurance came a day after US President George W. Bush had a long telephonic talk with his Chinese counterpart, Hu Jintao. Hu stressed that the successful holding of the first round of China-US strategic economic dialogue, which was launched in Beijing last September, shows that under the backdrop of rapid development of economic globalisation, China and US can enhance mutual understanding and trust through frank and sincere dialogue.

Hu also stressed the need to properly settle problems arising from bilateral economic and trade cooperation, promote steady development of bilateral economic and trade relations, and play active roles in global economic development and prosperity.

The central bank also said it would keep the yuan basically stable at a reasonable level. The bank warned in the report that the country faced the risk of inflation and of a rebound in investment, and that it must prevent the economy from overheating.

The consumer price index rose by 2.7% year-on-year, but in March the index grew by 3.3% bypassing the alarm level of 3% set by the central bank.