China is considering managing its huge foreign exchange reserves according to the "Temasek Model" of Singapore, according to Wu Xiaoling, vice president of the People's Bank of China.

 

"China is likely to set up a special investment company with the government holding the majority stake," Wu told the Beijing Morning Post.

 

Temasek Holdings is wholly-owned by Singapore's Ministry of Finance and the company's global investment reaps an average annual return of 18 percent.

 

The newspaper reported that a delegation headed by Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, have visited Temasek headquarters. Li himself spoke highly of the Temasek Model at a press conference held by the State Council in mid-December.

 

The Singaporean government does not intervene with the operation of Temasek and the sole responsibility of decision-making rests with Temasek's top management and the board. But Temasek is required to submit regular financial reports and distribute dividends to Singapore's Ministry of Finance.

 

China's foreign currency reserve has surged to a record high of US$1 trillion, magnifying the challenge facing the State Administration of Foreign Exchange (SAFE) of how to make the best use out of the stockpile.

 

SAFE plans to expand its Reserves Management Department staff from the current total of about 160 to nearly 200.

 

Some experts argue, however, that employing more people is not the answer. The real solution, they contend, is to introduce an independent investment outfit.

 

Since the foreign currency reserve stands as an asset on the balance sheet of the Central Bank, the massive stockpile can not be used to purchase foreign technology. Nor can it be used to supplement pension funds or support public services such as education, the health service and conservation.

 

The latest suggestion involves setting up a wholly-owned investment firm, which can purchase foreign exchange from SAFE with capital it raised through bond issuances, and then, as Temasek does, invest it globally.

 

Temasek's presence in China is mainly focused on banks and the real estate sector.

 

(Xinhua News Agency December 28, 2006)