While China is keen to cut its reliance on the dollar by investing its reserves in other assets, its currency regulator acknowledged the crucial role of Treasuries by saying it is "an important investment product for both U.S. domestic and international institutional investors."

The currency regulator also argued it cannot invest too much of China's reserves in commodities such as oil, gold and silver these markets are too volatile and small.

"Chinese companies and households consume a large amount of gold and crude oil," it said.

"If we use much of our foreign exchange reserves to invest in such areas, we could push up market prices, which may affect our people's consumption and economic development."

http://www.reuters.com/article/2011/07/20/us-china-us-idUSTRE76J1FL20110720