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China Plans to Shift Use of Foreign Exchange Reserves (Update2)

By Xiao Yu and Wing-Gar Cheng

Jan. 22 (Bloomberg) -- China, the world's biggest consumer of coal and metals, will use its foreign exchange reserves to buy ``strategic' resources, Vice Premier Zeng Peiyan said.

The government will increase the nation's purchases of resources for strategic stockpiling when there are ``plentiful' reserves, Zeng said in a speech carried on the Ministry of Land and Resources Web site today.

China is seeking to boost returns on its $1 trillion of reserves by buying higher yielding assets and diversifying its investment. Premier Wen Jiabao said last week that regulators will consider more ways of using the cash pile. The nation is building an emergency supply of crude oil and plans to expand that to metals to shield the world's fastest-growing major economy from supply disruptions.

``We want to build a stockpile mechanism for mineral resources,' Zeng said in the speech. He didn't give any details of how much of its reserves China might use for the purpose. The government plans to increase resources taxes within three years to curb excessive mining and conserve supplies, he said.

China also wants to reorganize the mining and resources industry, including accelerating the pace of overseas acquisitions to boost output, and attracting foreign investment in prospecting, Zeng said. State oil companies in China agreed two years ago to co-invest in oil fields in Venezuala.

Geological Fund

China, the second-largest holder of Treasuries, trimmed purchases of U.S. government debt by 1.7 percent in the first 10 months of 2006 to $346.5 billion. The government may set up an agency to manage $200 billion of its reserves modeled on Singapore's state-owned Temasek Holdings Pte, wrote Standard Chartered Plc economist Stephen Green last week.

China completed a 3.7 billion yuan ($476 million) oil storage tank in Zhenhai in October and has started filling it, Jiang Weixin, vice chairman at the National Development and Reform Commission, said Oct. 17. China is building storage tanks for crude oil in the cities of Zhenhai, Zhousan, Qingdao and Dalian. The facilities are set to be completed in 2008.

The country's oil imports rose 14.5 percent in 2006 to 145.2 million metric tons (2.9 million barrels a day), customs said Jan. 11.

The nation last year set up a geological fund of 2 billion yuan that is aimed at boosting exploration for 16 key minerals including coal, iron ore, uranium and copper.

To contact the reporter for this story: Xiao Yu in Beijing at [e-mail] Wing-Gar Cheng in Beijing at [e-mail] .

Last Updated: January 22, 2007 07:27 EST

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