Moreover, given the continuous appreciation of the yuan, the People's Bank of China is confronted with the risk of currency mismatch—the relative depreciation of its assets (forex reserves) against its liabilities (the yuan assets).

Under such circumstances, China should attach more importance to profitability, or the returns on investments of its forex reserves. Since 2007, China has begun exploring channels to invest its forex reserves. It has given birth to the China Investment Corp (CIC), which is designed to innovate in forex reserves investment and increase returns, and the newly established SAFE Co-Financing Office.

The asset portfolio held by forex management institutions could be comprised of foreign securities, strategic resources and direct investments in some industrial and commercial enterprises. Their assets can be operated by themselves or entrusted to top-notch financial institutions to run the assets. The latter has become quite popular. It came as no surprise when CIC in 2007 bought a $3 billion stake in Blackstone Group, one of the largest US private equity firms. In consideration of its investment performance, the avoidance of paying a large commission and a lower purchasing price than the initial public offering price, the deal was worthwhile.

But some problems still exist. For one thing, CIC had to give up its voting right in the transaction, making it difficult to safeguard China's investment interests. For another, CIC always invests in stocks and bonds operated by foreign institutions to earn higher returns, while these institutions tend to reinvest in high-quality Chinese enterprises. With capital raised from CIC, Blackstone heavily invested in China National Bluestar (Group) Co Ltd. That is to say, CIC's investment, via Blackstone, finally reached domestic companies, but at a high cost.

Why not directly invest forex reserves in domestic enterprises and financial institutions to avoid huge costs? The SAFE Co-Financing Office is positioned to answer the question. Compared with making a detour, it is more profitable to invest directly.

Although the SAFE Co-Financing Office hasn't released the lending rate for forex reserves, it is believed to be higher than that of government and agency bonds, but lower than financing costs in the market. Only in this range can enterprises and the SAFE reach a consensus.

Innovation in the use of China's forex reserves will also bring about security issues. In a word, higher returns should not come at the expense of security. The collapse of long-term capital management firms that made Western central banks suffer great losses should raise an alarm.

Meanwhile, different assets vary in their security level. For investments in financial sectors, security is closely linked with asset size. Both forex managers and the public should be aware of this and be more tolerant to investments made in financial sectors.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation