China to actively manage forex reserves

China recently announced plans to begin actively managing its foreign exchange reserves, currently valued at more than $1 Trillion. Concurrent with this announcement, China formally created The State Foreign Exchange Investment Company, which will initially be capitalized with more than $200 Billion. Another Chinese investment company will be given $100 Billion. These steps represent the culmination of several years of intense speculation that China would make more of an effort to manage its burgeoning reserves in order to maximize returns. Whether these two investment companies intend to diversify the reserves by investing in non-US assets is anyone’s guess, but at the very least, the US cannot be certain that China will continue to support the USD through its purchase of US Treasury bonds, which offer minimal yields.
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