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. Last Updated: 07/27/2016

China's Reserves Reach $1 Trillion Mark

HONG KONG -- China's foreign-exchange reserves, the world's largest, topped $1 trillion for the first time at the end of 2006, adding pressure on the government to let the yuan appreciate faster.

Currency assets excluding gold climbed 30 percent from one year earlier to $1.07 trillion, the People's Bank of China said on its web site Monday. The report confirmed previous statements by government officials.

A record trade surplus, foreign investment and speculative inflows have flooded the economy with cash, making it harder for Premier Wen Jiabao to cool an investment boom. A stronger yuan would help rein in lending and defuse U.S. and European complaints that China is keeping the currency artificially weak to spur exports.

Swelling reserves raise the risk of "inflation, asset bubbles and a rebound in investment,'' said Wang Qing, an economist at Bank of America in Hong Kong. "Yuan appreciation has to be one of the solutions.''

China's reserves climbed from $988 billion at the end of September and $819 billion at the end of 2005. The amount is more than double the $408.5 billion estimated by the Asian Development Bank as needed for the country to guard against external shocks.

China ended a peg to the U.S. dollar in July 2005, revalued the yuan by 2.1 percent and allowed it to trade against a basket of currencies. The yuan rose 3.4 percent versus the dollar last year. By comparison, the Thai baht jumped 15.7 percent and the South Korean won rose 8.6 percent.

The nation's trade surplus swelled 74 percent to a record $177.5 billion last year as exports surged.

China keeps about two-thirds of its foreign reserves in dollars and is the second-largest owner of U.S. treasuries after Japan, holding $344.9 billion in October. Concern that a weakening dollar may erode the value of the nation's holding is encouraging China to diversify. Central Bank Deputy Governor Wu Xiaoling said in November that the bank had been buying yen.

"Accumulating foreign exchange reserves is a cushion, but it can be costly,'' Masahiro Kawai, head of the Asia Development Bank's Office of Regional Economic Integration, said last month. He expects a "slow continuous depreciation'' of the dollar.

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke visited Beijing last year to discuss ways to reduce trade deficit with China, which stood at $130.8 billion in the first 11 months of 2006. Paulson said China agreed to make its currency more flexible.

China's economy grew 10.4 percent in the third quarter from one year earlier, slowing from a decade-high expansion in the previous three months.

The Central Bank raised interest rates twice last year and is also selling treasury bills to soak up money and curb investment that could leave China with idle factories, rising bad loans and accelerating inflation.