China is preparing for the establishment of a foreign exchange investment company directly under the cabinet to make better use of its massive foreign exchange reserve, Finance Minister Jin Renqing said in Beijing Friday.

"We will draw from international successful experience, such as the Temasek Holdings of Singapore, in the management of foreign exchange investment," the minister said at a press conference on the sidelines of the ongoing parliament annual session.

The new company will be under the direct leadership of the State Council, or the cabinet, instead of the Ministry of Finance as it was reportedly to be, Jin said.

China's foreign exchange reserve reached 1.066 trillion U.S. dollars at the end of last year. The State Council has decided to separate the management of foreign exchange reserve and foreign exchange investment, Jin said.

The establishment of the new company is aimed at making more profits by means of foreign exchange investment, he said, adding that the regular management of foreign exchange reserve will continue to be done by the State Administration of Foreign Exchange.

While delivering a government work report on Monday, Chinese Premier Wen Jiabao said, "We will ... strengthen and improve foreign exchange administration, and actively explore and develop channels and means for appropriately using state foreign exchange reserves."

China has been seeking more channels to ease the pressure generated by rising foreign exchange reserve. It has allowed businesses to keep a larger share of their foreign exchange incomeand encouraging financial investment abroad in the form of qualified domestic institutional investors (QDII).

The State Administration of Foreign Exchange granted 15 banks overseas investment quotas totaling 13.4 billion U.S. dollars in 2006. Meanwhile, 15 insurance companies were granted quotas totaling 5.17 billion U.S. dollars and one fund management company was given a quota of 500 million U.S. dollars.

Contrary to its past policies, China has implemented stricter regulations on incoming foreign exchange and loosened rigid controls on outgoing reserves, said Huang Zemin, head of the International Finance Institute of East China Normal University.

Source:Xinhua