But such a plan should proceed with caution, both Li and Yi warned, citing the huge risks involved due to changing resource prices.

In the short term, increasing imports is an effective way to decelerate foreign reserves, economists said. This would also reduce trade frictions with some countries that have a high trade deficit with China.

Economists also said the country should further relax controls on capital outflow, in order to create a better balance of international payments.

In a bid to ease foreign reserves and broaden investment channels, China has introduced a QDII (Qualified Domestic Institutional Investors) scheme, allowing them to invest overseas.

By October 10, the foreign exchange regulator had granted quotas worth US$11.6 billion to QDIIs.

"This is the right approach for creating a two-way capital corridor," said Yi. "We used to put too much emphasis on attracting foreign investment and feared capital outflow."

China is also shifting from a long-held policy of stockpiling foreign reserves in State coffers, and instead encouraging households and businesses to hold more foreign currency.

Individuals, for example, are now allowed to buy up to US$20,000 in foreign exchange a year, up from the previous US$8,000.

Previously, China invested some foreign exchange reserves in banks.

Central Huijin Investment Company, an investment arm of the central bank, injected a total of US$45 billion in foreign exchange reserves into China Construction Bank and Bank of China in 2003.

It poured another US$15 billion into the Industrial and Commercial Bank of China in 2005.

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