Sitting tight over three trillion dollar of forex reserves, China suffered a loss of $271.1 billion on its reserves between 2003 and 2010 and is set to loose another $578.6 billion due to steady depreciation of the dollar vis-a-vis the yuan, an official analyst said in Beijing.China is likely to lose $578.6 billion if the US currency's exchange rate sinks to six yuan a dollar, official media quoted Zhang Anyuan, the head of the fiscal and financial policy research division of the the National Development and Reform Commission, as saying.
Currently, the dollar is trading around 6.45 yuan.
"This amount of loss cannot be offset by the country's overseas investment earnings," Zhang said in a recent article in Securities Daily.
Due to the depreciation of the US dollar, China suffered a loss of about $271.1 billion on its foreign exchange reserves accumulated between 2003 and 2010, according to the details of the article carried by state run China Daily today.
Zhang said that diversification of China's foreign exchange portfolio is already crucially urgent for it to maintain the value of the assets.
By the end of March, China's foreign reserves had increased by $197 billion to more than $3 trillion for the first time, a rise of 24
per cent from the previous year, despite the first quarterly trade deficit in seven years during that same period.
Zhou Xiaochuan, Governor of the People's Bank of China, said in April that the holding has exceeded a "reasonable" level and the management and diversification of the portfolio needs to be improved.
China, the biggest buyer of US debt, trimmed its holdings for the fourth straight month in February to $1.15 trillion, according to data released by the US Treasury Department.
China indicated in April that it was ready to buy more debt from the eurozone's weaker states, in a move to help stabilize the bloc's fragile finances and protect its business interests.
It was considering purchasing more after investing billions of euros in Portuguese and Greek bonds to diversify its foreign reserves away from the dollar, Song Zhe, China's ambassador to the European Union, said.
The country is also planning to invest in Spain, including participating in the reorganisation of the troubled Spanish savings banks, the Ministry of Foreign Affairs said earlier in Beijing.
