Three reasons why China's forex reserves have increased

The vice governor of the People's Bank of China announced at the "China Economic Forum: Guangzhou Seminar" on April 15 that China's foreign exchange reserves had increased rapidly in the first quarter of 2007. The mains reasons for this were an overly large trade surplus, significant overseas financial settlements, and foreign exchange swaps.

Many Chinese enterprises represented by large state-owned banks have recently collected a lot of foreign funds. Due to the expected impact of RMB appreciation, these enterprises had adopted various arrangements for the gradual completion of settlement and remittance to China.

Foreign exchange swaps are one way of doing business. Investors convert the money into one currency and then convert it back at an appointed time.

By People's Daily Online