China to tap its foreign reserves to buy crude oil as part of a push to diversify holdings from U.S. Treasurys

The Chinese government is considering a plan to direct some of its gigantic currency reserves into crude oil. It's the latest development on the trend of China using the global asset crash to snap-up mining shares, mineral deposits, and other raw material assets. The scale of the buying isn't known yet, but just a sliver of China's $2 trillion in currency reserves would buy an incredible amount of oil.

With the U.S. issuing massive amounts of government bonds to finance economic stimulus measures, Chinese officials are looking to hedge against the risk of Treasury prices dropping.
China, which has been building up a national oil stockpile since 2004, aims to amass 100 million barrels by next year as a first step, the Japanese business daily Nikkei reported.

Beijing has nearly $2 trillion in foreign reserves, the largest in the world. It surpassed Japan last September as the No. 1 holder of U.S. Treasurys. Two-thirds of China's foreign reserve assets are said to be denominated in dollars, according to Nikkei.

Budget outlays have funded China's hedging initiatives so far, but an unnamed government official told Nikkei that a proposal to expand the program with the use of foreign reserves is under consideration. Another plan envisions applying reserves to the development of oil fields, rather than buying the oil directly.

Chinese Premier Wen Jiabao has recently hinted that China may review its large purchases of U.S. Treasurys, saying that future buying will be adjusted to meet the nation's need to maintain the value of its foreign currency reserves.