China exploring ways to use forex reserves to buy oil - report

China is exploring ways to use some of its huge foreign exchange reserves to buy imported oil, the Shanghai Securities News reported, citing an unidentified source.

The newspaper said the plan, which was first proposed as early as 2000, would reach the twin objectives of making better use of the nation's foreign exchange and ensuring vital oil supplies.

The paper quoted Li Yang, a senior economist at the Chinese Academy of Social Sciences and a former member of the monetary policy committee under the central bank, as saying the plan to use foreign exchange reserves to build up strategic oil reserves is reasonable.

But he said the biggest obstacle to the plan is coordinating the actions of various government ministries and departments.

China had foreign exchange reserves of 659 mln usd as of the end of March.

A number of economists have recommended that China diversify its reserves, which are still heavily weighted towards US dollars.

In March, Guo Shuqing, director of the State Administration of Foreign Exchange, suggested China could use some of its foreign exchange reserves to purchase imported oil.

He also said at that time: 'Such a move would not cost us too much of our foreign exchange reserves... Purchasing 100 mln tons of oil would require only some 30 bln usd.'

China is already planning to build a strategic oil reserve though actual stocking of the reserve is said to be moving ahead slowly.

Niu Li, a researcher on global oil issues with the State Information Center, was quoted in the Shanghai Securities News today as saying the government should speed up this plan to shift reserves into oil in order to reduce investment risk.