China is exploring the opportunity for setting up an India infrastructure fund in order to strengthen its economic and trade ties with this country. With reference to the proposal for a dedicated India fund, Ma Delun, deputy governor of the Chinese central bank said, “As central bank of China, we will support anything that is facilitating economic and financial cooperation between India and China."

India's trade with China is on the edge to cross $60 billion in 2010-11 from the anticipated $52 billion during the current financial year.

Elaborating on the proposed fund, Ma said: “Although we have the market demand and opportunity of cooperation, all participating parties should decide (on the proposed fund) after they evaluate the risk, returns and considering other businesses”.

Ma, who was heading an 18-member delegation of Chinese bankers, regulators and industry representatives, did not detailed on the size and investment of China's proposed India fund. Foreign exchange reserves-rich China has a $200-billion sovereign wealth fund, which makes strategic investments in overseas markets.

The Peoples’ Bank of China is not keen to buy gold from International Monetary Fund (IMF), on the other hand Reserve Bank of India (RBI) bought IMF gold worth $7.4 billion last month.

Ma pointed out that the Chinese central bank is aggressive to diversify its asset portfolio from that of the US greenback-dominated treasury investments.

“We have recognized the need to deepen exchange rate reforms. Yuan value has been appreciating after we initiated the currency reforms beginning 1994.”

However, the Asian financial crisis in 1997 put brakes on yuan appreciation. “This appreciation was hampered by Asian financial crisis in 1997. After the crisis, the Chinese international reserves were halved”, Ma said.

“Progress of currency reforms has been gradual based on our discussion with several experts including IMF to make Yuan fully convertible on all accounts” said Ma.

The major issue which confronts the trade ties of China with its partners likes the US, Europe and even India is attaching yuan value against a basket of currencies. Domestic power equipment producers like L&T, Bhel and tyre makers have recently requested the government on value of yuan which has nailed down at low level giving their Chinese counterparts ‘undue advantage’. But, Ma pointed out that it was not policy of Chinese establishment to push its exports by artificially fixing yuan rate.

“China never aims to improve competitiveness of our exports by depreciating yuan. It will never make our enterprises competitive that way. Fixing the value of currency to gain competitiveness in exports is like a slow process of suicide”, Ma said.

“We would like to encourage our entrepreneurs to compete on the basis of cost and quality of their products. And, this is the most important way of enhancing their competitiveness rather than depreciating the domestic currency”, he said.

Chinese establishment will give effort towards making Yuan an up to standard currency for international trade.

“A country must be influential enough. Only then will its currency will be accepted naturally as an international reserve currency. Only then will it be acknowledged by everyone including all independent institutions, monetary authorities participating in international trade”, Ma said.

“After (the US-triggered) financial crisis, many countries are seeing the necessity of diversifying reserves. Now, some scholars in China and elsewhere are researching in establishing yuan as a super saving reserve”, he said.

Ma mentioned “We haven’t proposed to make yuan the international reserve currency. That has never been the official position,”

Ma also pointed out in response to the query that will China buy gold from IMF to move away from US dollar denominated reserves, “Security is top priority for China’s international reserves. And, we have always been advocating and implementing diversification of reserves. If you see our portfolio or reserves, you can see it is not a single currency or single asset (which we rely upon)”.

Source: Mydigitalfc.com