The Chinese government should moderately expand the high-yield assets in its hefty foreign exchange reserves and diversify their uses, says Li Yang, a finance expert with the Chinese Academy of Social Sciences.

Li proposes the government should guarantee the foreign exchange reserves against losses and try to increase the investment returns.

He estimated the investment returns of the reserves at four percent.

The reserves should be divided between liquidity funds and investment in pursuit of high returns, said Li.

The central bank manages the liquidity in order to implement the country's monetary policy, but the rest should be subject to the Ministry of Finance, or a special institution for financial investments.

Li also advocated the establishment of an investment institution to explore diversified uses of the reserves, including purchasing advanced equipment, technical expertise and strategic resources from abroad.

The government should loosen controls on individual purchase of foreign currencies and encourage more qualified enterprises to buy foreign currencies for foreign direct investment, said Li.

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