China's forex reserves hit new record high

BEIJING — China's foreign exchange reserves soared to a record $3.1975 trillion at the end of June, the central bank said Tuesday, highlighting concerns over inflation in the world's second biggest economy.China's forex reserves have ballooned in recent years, fuelled by strong foreign investment, large trade surpluses and inflows of "hot money" -- short-term speculative funds in search of quick profits.Foreign currencies earned by Chinese exporters are changed for yuan with the central bank so it can control the value of the currency.The foreign exchange is added to China's growing coffers, while the yuan flow into the economy, adding to inflationary pressures.Chinese Premier Wen Jiabao on Tuesday once again pledged that stabilising prices was still the main priority in the country's economy.China "must handle the relationship between maintaining stable and rapid growth, pursuing economic restructuring and managing inflation expectations," Wen said, according to a statement on the central government's website.Capital Economics senior China economist Mark Williams told AFP the central bank had been buying $50 billion worth of foreign exchange each month for the last quarter, "which is a huge amount.""It's a problem for the central bank, but it's one they cannot avoid as long as China sticks to its current exchange rate policy," he said.China has restricted the amount of money banks can lend on numerous occasions and hiked interest rates five times since October, but is still struggling to keep its politically sensitive inflation rate under control.Last month the country's consumer price index rose 6.4 percent -- the highest level since June 2008, when the inflation rate reached 7.1 percent.Food prices were up 14.4 percent year-on-year in June, while the price of pork, China's preferred choice of meat, was up 57.1 percent during the period, according to the National Bureau of Statistics.Higher food prices hurt low-level income earners most, as foodstuffs account for more than one third of the monthly spend

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