China will look for new ways to invest the world's largest foreign exchange reserves this year to generate higher returns, a senior regulatory official said on Thursday. It would be a challenge for the country not just to preserve but to increase the value of the $2.4 trillion stockpile, said Guan Tao, head of the international balance of payment department at the State Administration of Foreign Exchange (SAFE).

In 2008, Beijing transferred $200 billion from the foreign exchange reserves to sovereign wealth fund China Investment Corp as part of efforts to seek higher returns. "Making more efficient and diversified use of foreign exchange reserves is an important issue for China. We will explore this issue further this year," Guan said.

The currency composition of China's reserves is a closely held secret, but many economists assume the majority of it is held in US dollar-denominated securities, likely Treasury debt. China had been a net seller of $12 billion in Treasuries in the last six months, Alan Ruskin, Royal Bank of Scotland economist, said in a note, citing US government figures. Guan also said that China would continue to face capital inflow pressure in the foreseeable future.

Copyright Reuters, 2010