A war of words is flaring between Zhang Weiying (Left), a leading economist at Peking University, and Gao Xiqing, general manager of  China Investment, that whether China should give its huge forex reserves to public.

A leading economist dropped a bombshell at a China Entrepreneurs Forum two days ago when he said half of China's foreign currency reserves should be given away to the public in order to stimulate the economy.

"It would be good for ordinary people to become holders of American securities," said Zhang Weiying of Peking University, adding that the government should also give away 40 percent of the shares of state-owned companies to the public.

"If you add half of the $2 trillion in foreign currency reserves, that makes 13 trillion yuan (US$1.9 trillion); 10,000 yuan (US$ 1,470 ) for every Chinese person," said Zhang.

His radical idea drew immediate criticism from Gao Xiqing, general manager of China Investment Corporation, the sovereign wealth fund established in 2007 to invest China's foreign exchange reserves.

"Usually his speeches make a deep impression on me, but this time, I have to say I don't share his views," said Gao. "This idea is too extreme."

"If the government followed his advice it would lose control of the reserves and would have less clout on political issues."

In Gao's opinion, China's foreign exchange reserves act as a deterrent. If China sells US securities on the market, it hurts both sides.

"Even if the suggestion was carried out, the people would probably save the money instead of spending it, so it would not work," he added.

Dismissing Gao's remarks, Zhang said that even after halving the reserves under its control, the remaining $1 trillion would be enough for the government to maintain its influence on the international stage.

"If ordinary people become holders of US Treasuries and were allowed to trade them on the market, the reserves would be better managed than if they remain hoarded in the government coffers," added Zhang.

(China.org.cn by He Shan, February 10, 2009)