China says foreign reserves stable despite crisis

BEIJING — The agency that manages China's $2.5 trillion in foreign reserves said Tuesday it made a profit last year despite the global crisis and expressed confidence it can make a profit in the future. Beijing has been sensitive to criticism at home of its handling of the reserves after some foreign investments soured, and Europe's debt crisis has prompted questions about the safety of China's holdings. The reserves made a "relatively good profit" in 2008 and 2009, the worst two years of the crisis, the State Administration of Foreign Exchange said in a statement that didn't give specific figures. "We are confident that our foreign reserve can achieve long-term stable and good returns," it said. The agency tried to defuse concern about the impact of financial turmoil at Fannie Mae and Freddie Mac, saying it does not own shares in the troubled US mortgage giants and their bond repayments are normal. SAFE said it is closely watching the two agencies and the European debt crisis. The agency also said it should make a profit even if China's currency, the yuan, rises against the dollar. It said gains on yuan-denominated assets should be bigger than losses on dollar-denominated assets in yuan terms. China announced in June it would allow more exchange rate flexibility, which is expected to lead to a gradual rise by the yuan against the dollar. The bulk of Chinese reserves are invested in US Treasury debt and other safe but low-yielding assets, but Beijing launched a sovereign wealth fund in 2007 to earn a better return on a portion of its holdings. The government faced criticism after the value of some of the fund's early investments in Morgan Stanley and private equity fund Blackstone Group plunged when the global crisis hit in 2008. —AP