China’s forex holdings rise to record $2.85 trillion

Statistics released by the People’s Bank of China on Tuesday showed the Chinese forex kitty is bursting at seams with an 18.6 percent growth in 2010 which made it zoom to a record $2.85 trillion.

The revelation that the foreign exchange reserve of the world's second largest economy and the largest exporter had increased by $199 billion in the final three months of 2010 will make it harder for Beijing to deflect criticism over its role in global currency and trade imbalances.

The central bank’s statement came a day after data showed that Chinese trade surplus narrowed in December to $13.1 billion, much lower than economists' consensus of more than $22 billion. It was also reported that China's trade surplus for the whole of 2010 narrowed 6.4 percent from the previous year to reach $183.1 billion primarily on account of higher imports.

China's trade gap with its treading partners has been a thorny issue not just in bilateral ties with the U.S. but has overshadowed multi-lateral bodies such as G-20. Beijing has long faced criticism that its monetary policy was 'mercantilist' and that it was keeping the yuan currency undervalued to gain undue export advantage.

Meanwhile, China has ratcheted up criticism of the U.S. Federal Reserve’s policy of going for quantitative easing, a measure under which the central bank will buy assets to raise the amount of money in the market, saying such a policy leads to global imbalances by weakening the dollar.
Beijing's forex holdings have risen through the roof despite its protestations that it's taking measures to reduce dependence on exports and boosting domestic consumption.

The bickering over the trade and currency imbalances will likely be on the table when Chinese President Hu Jintao meets President Obama in the White House later in the month.