Why China Should Invest Its Foreign Exchange Reserves in the Major US Banks

<正> The subprime mortgage crisis and the resultant inflationary monetary policy in the USAhave left the Chinese economy subject to four risks in particular.First,China's exports tothe USA might continue to decline.Second,in the medium term,the higher US inflation ratewill lead to a weak dollar,which will negatively affect China's exports.Third,in the longterm,when the US Federal Reserve decreases money supply to control inflation,the USeconomy might enter another recession,hurting China's exports further.Fourth,China'sforeign exchange reserve assets might suffer heavy losses when the US inflation rate rises.Conventional foreign exchange investment strategies are insufficient for dealing with thesefour risks.Investment by China in the major US banks is suggested in the present paper.This strategy would mitigate if not eliminate all four risks.China could gain considerablefinancial returns on investments with only moderate risk.