Dollar dilemma as greenback value falls (4)

Lian Ping, chief economist with the Bank of Communications, said a decrease in the international payment surplus and a more freely fluctuating exchange rate for the currency would have resulted in a slower increase in China's foreign exchange reserves.

"The current account surplus was less than 3 percent of the gross domestic product in 2011. It was 10 percent in 2007," said Lian.

A report from the Bank of Communications predicted that in 2013 the amount of China's foreign exchange reserves may remain between $3.3 trillion and $3.4 trillion.

"The fast growth trend may have ended, replaced by a modest and stable increase, which can help to reduce the pressure for currency appreciation and stabilize the exchange rate," the report said.

Investment in US treasury bonds was "unavoidable", said Qu Hongbin, the chief China economist with Hong Kong-based bank HSBC.

"Compared with investment products that are denominated under other main currencies, the dollar-dominated assets still generate higher and more stable returns," Qu said.

"I am confident with SAFE's pilot work to seek better ways to diversify investment of the reserves," he added.

The top manager of China's sovereign wealth fund, Chairman and Chief Executive Officer of China Investment Corp Lou Jiwei, said US government bonds are still safe assets right now, but the continued low interest rates in the US had decreased expected returns on the investment.

China will continue to buy US Treasury bonds, although the future gains from the investment don't look promising, according to Lou, who is a former vice-minister of finance.

According to the US Treasury Department, by the end of December, foreign creditors held $5.56 trillion in US debt, an increase from $5.54 trillion in November. It was the 12th consecutive monthly growth.

Japan invested an additional $2.5 billion in US government bonds in the last month of 2012, $1.6 billion more than it invested in November. The December injection raised the total amount of US debt for Japan to $1.12 trillion, maintaining its position as the second largest foreign net US creditor, the US report said.

It seems overseas sovereign investors have not yet been scared by the warning signals of US fiscal problems. They continue to show confidence in US future economic development through adopting more long-term credit.