China sets out investment scheme

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China has confirmed plans to create an investment company to get better returns on its foreign currency reserves worth $1 trillion.

The country's huge trade surplus has helped build up the world's largest currency reserves, which until now were invested mainly in US Treasury bonds.

Premier Wen Jiabao did not reveal when the fund would be set up or how it would manage the money.

But he insisted the move would not have a negative impact on the US dollar.

Acknowledging that China still lacked experience in making overseas investments overseas, Mr Wen said the body would be independent of government ministries and commissions.

"It will follow the relevant rules or regulations and make proper use of the foreign exchange reserves with proper oversight and with the goal of preserving and increasing the value of the foreign exchange reserves," he said.

Stability warning

The comments came at the end of the annual session of China's parliament, the National People's Congress.

It saw delegates approve a bill unifying tax rates at 25% - ending preferential treatment for foreign-funded firms.

Mr Wen also warned of continued imbalances in the country's economy, saying that its economic development was "not stable, balanced harmonious and sustainable".

"Investment growth is too high, credit growth is too fast, liquidity is excessive and trade and international payments are not balanced," he said.

"All these problems facing us need to be urgently addressed and will need our continued efforts to solve them."

The size of China's currency reserves means that the fund could wield huge influence in global markets.

There have been concerns that redirecting Chinese investment from US bonds to other assets could drive up long-term interest rates in America, which in turn could hurt US companies, home buyers and borrowers.

How China's $1 trillion currency reserves are handled has been a hot topic in China recently, with some arguing that some of the money should be spent on fighting poverty, while others call for strategic investments in natural resources or foreign companies.