China’s PBOC May Plan Forex Unit, South China Morning Post Says

China’s central bank is studying a plan to set up a new agency to invest the bulk of the nation’s $3.5 trillion of foreign exchange overseas for better returns, South China Morning Post reported.

The People’s Bank of China Govenor Zhou Xiaochuan has assigned a division head of the foreign exchange regulator to lead a team to study the plan, according to the report, citing two unidentified people close to the central bank. The new agency would be in addition to the China Investment Corp., the nation’s sovereign wealth fund, and may report to the central bank directly, according to the report.

Senior government officials and scholars, unhappy with China Investment Corp.’s poor returns, have been pushing for new platforms to invest China’s foreign exchange reserves abroad, today’s report said.

Calls to the PBOC news office weren’t answered. A call to CIC’s press office in Beijing today wasn’t immediately answered.

CIC, with $575 billion under management, posted a 10.6 percent return on its overseas investments last year as global equities rallied. The MSCI World Index jumped 13 percent in 2012.

The fund, which last month named Ding Xuedong chairman, has sought to burnish its performance as it seeks to make the case for more money to be placed under management. That came as State Administration of Foreign Exchange, the foreign exchange regulator that oversees day-to-day management of China’s reserves, began diversifying away from U.S. Treasuries and seeking investments in assets from equities to property.

China’s foreign-exchange regulator said earlier this year a new unit will use the nation’s reserves to support Chinese companies expanding abroad, signaling fresh outlets for the world’s largest currency stockpile.

The State Administration of Foreign Exchange said Jan. 14 that its Co-Financing office has been seeking “innovative use” of the reserves including “supporting financial institutions in serving China’s economic growth and going-out strategy.”

— With assistance by Jun Luo

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