Page last updated at 10:39 GMT, Wednesday, 15 July 2009 11:39 UK

China's foreign reserves top $2tn

A woman rides past a new property development in Beijing's business district
Foreign investors are buying Chinese property and stocks

China's foreign exchange reserves, the world's largest, have surpassed $2 trillion (£1.2tn), the country's central bank has said.

Currency reserves rose 17.8% from June 2008 to a record $2.13tn. Its currency stockpile is twice the size of Japan's - the second-biggest holder.

The reserves rose as foreign investment flowed back into China

The People's Bank of China buys many of the dollars entering China to prevent its exchange rate from increasing.

BBC business editor Robert Peston says that the primary cause of China's ballooning foreign currency reserves on this occasion is not the surplus of China's exports over its imports.

Foreign currency held by a government or a central bank
Used to pay foreign debt obligations or influence exchange rates
The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency
Smaller amounts are held in euros, pounds and yen

He says it is the result of overseas investors identifying China as the strongest of the world's major economies and pouring money into property and shares.

China's main stock index, the Shanghai Composite Index, has jumped by 74% this year.

Dollar dominance

The bulk of China's foreign currency reserves are in dollars - mainly US government debt.

The country's leaders have expressed concern about the stability of the US dollar and have called for the creation of a new international reserve currency.

They fear the dollar could weaken as the financial crisis takes its toll and undermine the value of China's vast holdings of US government debt.

Economy recovers?

There are signs that China's economy is recovering from its recent slowdown as a massive government stimulus package takes effect.

Property prices, investment, bank lending and retail sales have all picked up.

But some economists fear that the budding recovery could trigger new bubbles in bank lending and real estate.

China is due to release economic growth data for the second quarter on Thursday.

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Japan Times China market value overtakes Japan's - 10 hrs ago TOPWRAP 3-China growth surges; Europe, Asia companies' sales up - 25 hrs ago
Reuters India Rebound in China growth lifts world recovery hopes - 26 hrs ago
Reuters China stocks may rise further on liquidity,growth -Goldman - 26 hrs ago
Business Report China's reserves transcend $2 trillion - 28 hrs ago

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