The People's Bank of China announced Monday that China's balance of foreign exchange reserves had exceeded one trillion US dollars in 2006 to reach of US$1.0663 trillion, an annual increase of $247.3 billion.

Huge foreign exchange reserves mean that China has a strong ability to meet all international payments. However, there are negative side affects to China's extensive forex reserves, which may also cause trade friction. China has established international payment balance-oriented macroeconomic policies. In addition to maintaining reasonable growth in exports and foreign investment, China should also expand its imports and improve the quality of foreign capital use.

History of China's foreign exchange reserves

Before 1979, China's foreign exchange reserve never exceeded US$1 billion. At certain times, the balance fell into negative. At the end of 1981 China's foreign exchange reserve reached US$2.7 billion.

In 1990, China's foreign exchange reserves exceed US$10 billion for the first time, standing at $11.09 billion at the year's end. At the end of 1996, the figure exceeded $100 billion.

China's foreign exchange reserves broke US$200 billion at the end of 2001. The balance was $609.9 billion at the end of 2004 and $818.9 at the end of 2005. In February 2006, foreign exchange reserves rose to $853.6 billion. At this point China overtook Japan as the country with the largest forex reserves in the world.

Editor: Yan