Li cited the high percentage of gold in the foreign exchange reserves of the United States, Italy, Germany and France, to argue that China's gold holdings, which accounted for about 1.6 percent of its reserves, are too small.

In addition, he believes that China should consider buying good overseas companies and also acquire technologies during the economic crisis.

The Obama administration is counting on countries like China to finance its expensive $787-billion economic stimulus and China has expressed concern about the prospects for the country's economy and the health of its investment.

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," Premier Wen Jiabao said during a March 13 press conference. "To speak frankly, I do indeed have some worries," he said.

Experts also suggest that the country should reduce the size of its trade surplus, either by importing more from other countries or by doing more overseas investment.

"We understand China's currency policy is aimed toward an eventual balance between inflows and outflows. But for now, inflows are dominant," said Patrick Bennett, Asia Foreign Exchange & Rates Strategist with Societe Generale in Hong Kong.

Bennett believes that a modest appreciation of the Chinese yuan would also work to slow inflows and would be a damping influence on the trade surplus.

(Xinhua)
Updated: 2009-07-18 10:48

China's Central Bank Governor Zhou Xiaochuan said Friday that the country's foreign exchange reserve should not be seen as "an investment fund", so it should not be looked on as a profit source.

"If the foreign exchange reserve can produce reasonable returns, it is good enough," Zhou said at Peking University when delivering a speech.

China had reserves of $2.13 trillion in June, the largest in the world.

He said the increase in the reserve could bring the country many advantages, adding that agencies using foreign exchange reserve to invest should endeavor to guarantee security and value appreciation, without specifying the names of the agencies.

In 2007, China set up the China Investment Corporation, with a registered capital of $200 billion. The Beijing-based company is investing in equities, fixed income and alternative assets worldwide