China on Friday sought to reassure global currency markets that a new state investment agency set up to chase higher returns for its $1,000bn-plus in foreign exchanges reserves would not harm the value of the US dollar.

Wen Jiabao, premier, said at a press conference to close the National People’s Congress that investments by the agency “would not have any impact on US dollar-denominated assets”.

Mr Wen’s comments were reinforced by the People’s Bank of China, the central Bank, which said in a report issued hours later that it would not make “frequent, major adjustments to the structure of the reserves in response to market movements”.

Mr Wen gave no timetable for establishing the new agency or the proportion of the reserves it would manage. But his comments are significant because Chinese leaders have been cautious in their remarks on the reserves, especially regarding the US dollar, for fear of encouraging speculation that Beijing is reducing its holdings of the currency.

Mr Wen’s reassurance on the US dollar is also in China’s self-interest, since any dollar sell-off would leave huge capital losses for Beijing’s existing holdings.

The precise make-up of China’s holdings is a state secret, but about 75 per cent are believed to be held in dollar-denominated assets.

Mr Wen said: “I can assure you that by instituting such a foreign exchange reserve investment company, it will not have any adverse impact on US dollar- denominated assets.”

Chinese leaders have publicly canvassed a range of uses for the reserves, ranging from portfolio investments overseas to the purchase of so-called “strategic” resources and funding the local welfare system.

The government has announced that Lou Jiwei, the former vice-minister for finance, has been appointed to a position under the State Council, the cabinet, in apparent readiness to takeover the running of the new body.

But it has yet to give any detail about how the body would be run and its relationship to other bodies under the central bank which hold large tranches of shares in state-owned companies.

Mr Wen’s generalised reassurance on the US dollar is also in China’s self-interest, as any sell-off in the greenback would cause huge capitals losses for Beijing’s existing holdings.

The precise make-up of China’s holdings is now a state secret but about 75 per cent are believed to be held in US dollar, either in Treasury bonds, or other higher-yielding securities.

The holdings are managed by the State Administration of Foreign Exchange, an agency under the central bank, which will continue to oversee the bulk of the reserves even after the establishment of the new agency.

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