China's imports and foreign investment have been limited to date, to some extent, by restrictions imposed by other countries. However, the crisis has prompted some nations with much-needed technology to ease those restrictions.

The United States and China signed an agreement on Jan. 13 that allows U.S. exporters to sell certain dual-use items to China without acquiring permission from the government. Dual-use refers to products that can have either civilian or military uses.

Wen also revealed during his trip to Europe last month that China would send a delegation there to procure advanced equipment and technology.

Boost to world

Importing more advanced equipment and technology would boost China's domestic investment and provide effective economic stimulus, said Zuo Xiaolei, chief economist of China Galaxy Securities Co. Ltd.

"China's increase of imports will surely contribute to the economy of the exporters and thus help the world economy recover," Zuo said.

She warned that it would be dangerous either to use the reserves for budgeted spending or subsidies to boost consumer spending. Either use could fuel inflation or a depreciation of the yuan.

Zhao Xijun, deputy director of the Institute of Finance and Securities at Renmin University, said China had other choices. Apart from purchasing crucial technology, equipment and resources, it could also make direct investments through commercial banks or support state-owned enterprises' overseas acquisitions.

For example, Aluminum Corp. of China, or Chinalco, announced on February 12 it would invest US$19.5 billion in mining giant Rio Tinto Group, bailing out the latter while securing for the state-owned Chinese company access to more resources. This deal would be by far the largest overseas investment by a Chinese company.

"To buy more strategic assets, energy and resources would also be a very important way to efficiently use the reserves. It would help preserve and enhance the value of the reserves," Zhao said.

New destinations

Zhou Xiaochuan, governor of China's central bank, the People's Bank of China, has also said that China should consider diversifying the destination of its reserves.

Speaking on the sidelines of an Asian central bankers' meeting earlier this month in Malaysia, Zhou asked: "is it time for China to consider using the reserves somewhere else, instead of concentrating too much on the United States?"

That could be a hint that China will shift the use of its reserves to put more into developing countries and emerging markets. These countries offer growth potential, richer resources and lower labor costs but they need funds for development, the analysts told Xinhua.

(Xinhua News Agency February 18, 2009)