China's foreign exchange reserves broke through US$1.33 trillion at the end of June, up 41.6% year-on-year, the People's Bank of China announced on Wednesday. The reserves have increased by a total of US$266.3 billion during the first half of 2007, higher than the full-year rise of US$247 billion in 2006, AFP reported. "A large-scale forex reserve may backfire," said Wang Yuanlong, an economist with Bank of China, according to state media. "It is the major reason leading to the excess liquidity in China." The announcement came on the heels of news that China's trade surplus hit a monthly record of US$26.91 billion in June, up 85.5% year-on-year. The accelerating trade surplus is seen as a key driver in China's accumulation of foreign exchange. It is also the source of friction with the US and Europe, where it is claimed that China's currency is deliberately restricted, making the country's exports relatively cheaper.