On the other hand, establishment of a reserve system of strategic resources is urgently needed for steady and sustainable development of the Chinese economy.

With 12 per cent of the world's known mineral reserves, China ranks as the third largest resources country. Yet, both its 1.3-billion population and its near double-digit economic growth have contributed to the inadequate supply of many key resources.

For instance, when investment significantly picked up in 2004, most parts of the country had been seriously hit by frequent brownouts due to a shortage in the supply of coal, the country's major energy resource.

Without a functioning reserve system of key resources, it is more than likely that China will be increasingly exposed to shortages of resources. And an unstable Chinese economy is clearly in the interest of no one.

China's efforts to build its reserves of strategic resources are good news for the international market since the country will eventually become a price stabilizer. Once China's reserve system of key resources is set up, global dealers can expect less price volatility caused by China's massive purchase.

However, if the forex-for-resources plan is to succeed, the Chinese authorities must speed up reforms in the financial sector. Only with the help of a developed financial market that can effectively hedge against future risks can the resources reserves lay a solid foundation for smooth economic growth in the long run.

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