This tactic would reduce borrowing costs and relieve the pressure on commercial banks to pay savings interest ， said Zong Liang， a researcher with the Institute of International Finance under the Bank of China.

"By doing that， we can avoid the high costs in the international financial markets and solve the problems of high risk ， low yield and lack of variety in foreign currency investment，" he said.

The measure may also derail an unwanted outflow of foreign currencies triggered when China imposed a 20 per cent levy on proceeds from savings accounts early last year， he said.

A few years ago ， insiders said， the Ministry of Finance mulled the idea of borrowing from local residents but dropped it without comment.

Foreign currency savings held by the Chinese people have soared of late， jumping 16.2 per cent in September year-on-year to nearly US$80 billion ， the central People's Bank of China said.

Zong's proposal came as a recent cut in interest rates by the US Federal Reserve prompted lower savings rates on US dollar accounts at Chinese banks.

Foreign exchange trading and the hard currency B-share market ， the other two major forms of such investment in China ， have proved risky and unrewarding for most Chinese people ， Zong said.

The need for foreign currencies is still strong. China has been borrowing overseas at interest rates as high as 10 per cent in recent years ， typically to finance large infrastructure projects because the country's growing foreign exchange reserves ， which had reached US$200 billion by mid-October， cannot be easily utilized ， a source said.

Some doubted the bond proposal can be enacted ， arguing it would hamper the arrival of the full convertible renminbi.

"I don't see any reason in doing that ，" said Yuan Gangming， a senior economist with the Chinese Academy of Social Sciences. "We should be in the process of lifting existing controls."

Zong also recommended the creation of close-ended foreign currency funds ， which are to be managed by professionals in the international markets. Already， Chinese investors have been trading foreign currencies in their accounts at domestic banks.

The idea is workable since it does not require further policy changes and makes trading more professional and efficient ， Zong said.

(People's Daily 10/30/2001)