The remarks by the State Administration of Foreign Exchange (SAFE), ahead of annual meetings of the National People's Congress (NPC) next month, seem to signal the central government wants to reform the way it manages the reserves now to bolster returns.

"We will stick to market-based reforms, increase forex management and prompt a general balance in international payments," SAFE said in a website statement.

"We will also step up oversight of capital inflows, beef up supervision of short-term foreign debt and expand channels for the outflow of funds."

China's trade surplus soared 74 percent to US$177.5 billion in 2006, boosting the country's total forex reserves to a record US$1.07 trillion, the world's biggest.

The forex regulator will also steadily introduce reforms regarding the yuan's full convertibility and make trade and cross-border investments more convenient, according to the statement.

The People's Bank of China, which now manages the reserves, has invested the majority of the reserves in overseas government treasuries, which however, offer low investment returns.

The NPC, China's top legislative body, is likely to approve plans to establish two agencies to help manage the reserves at its March plenary session, Market News International reported yesterday, citing unnamed sources.

The Ministry of Finance may set up a unit, to be headed by Vice Minister Lou Jiwei, which will be in charge of purchasing high-yield assets including resources for China's economic growth, Market News said.

The other arm will be modeled on Central Huijin Investment Co, a central bank investment body, the news agency said, without disclosing the specifics of its investment role.

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