However, analysts believe China will remain committed to the Treasury securities in the short term. There are few investment vehicles that can match the depth and liquidity of the U.S. Government debts. In addition, any abrupt sell-off would damage the value of the enormous holdings Beijing already has—and may rub salt into the wounds of the U.S. economy, they said.

Slowly but surely, China will take a diversified forex reserve investment portfolio to get a handle over risks, said Guo Tianyong, a senior economist with the Central University of Finance and Economics, in an interview with Beijing Times.

Flying High

Air China Ltd., the country's flagship carrier, announced on August 17 that it would pay HK$6.3 billion ($812.8 million) for another 12.5-percent stake in Cathay Pacific Airways Ltd., a Hong Kong-based carrier with a presence on the Chinese mainland. Air China will snap up the interest from CITIC Pacific Ltd., bumping its holding in the Hong Kong airline to 29.99 percent. The original stake built up in 2006 heralded a close tie between the two carriers.

The investment marks a step-up of Air China's global ambitions, given Cathay's dominant position in Hong Kong—one of the world's busiest hubs for air travelers. The added stake will also give Air China a greater say in its strategic partnership with Cathay, and sharpen its competitive edge at a time of souring business mood. Almost all Chinese airlines spilled red ink last year under the dual pressure of demand fallout and overcapacity.

Acquisitions by competitors were also obvious catalysts. The China Eastern Airline Corp. Ltd. in June, for example, acquired the Shanghai Airlines Corp. Ltd., underpinning its foothold in Shanghai. Meanwhile, it also recently inaugurated a Beijing branch in an aggressive push into the capital city, home market of Air China.

A closer relationship with Cathay will help Air China ride out of the gloom if they could effectively push ahead with deeper coordination, said Li Lei, an analyst with Beijing-based China Securities Co. Ltd., in a report.

FDI Loses Steam

The euphoria of investments in China seems to be vanishing almost as abruptly as it had arrived.

The foreign direct investment (FDI) flow into China shrank by 35.7 percent from the year before, to $5.36 billion in July, compared with a 6.8 percent dip in June, according to statistics from the Ministry of Commerce. This was the 10th straight monthly drop since last October. The newly approved foreign enterprises numbered 1,845 in July, down 21.4 percent year on year.

"The sharp recession has left global companies in a bad shape to invest," Zhang Yongjun, a researcher with the State Information Center, told the Shanghai Securities Journal. "The peaking FDI inflows last July also set a high reference base."

But economists believe that it is just a matter of time before China regains lost ground. With an economic turnaround on the horizon, its appeal to foreign investors is on track to heal, they said. A recent report by the United Nations, for instance, indicated that China remains a favorite choice for investment in the world—followed by India and the United States.

Zhang Xiaoji, an economist with the Development Research Center of the State Council, argued that China's solid infrastructure foundation and unparalleled market growth can offer a good level of earnings, on top of its cheap labor and economic openness.

CIC Fared Well

Despite the sweeping global financial shock, according to its recently published financial report, China Investment Corp. (CIC), the $200 billion sovereign wealth fund, logged a net profit of $23.1 billion last year, with a return on capital of 6.8 percent. It was its first financial report since it was established in September of 2007.

But majority of the returns were generated by portfolios in domestic financial institutions via its subsidiary, Central Huijin Investment Ltd. This effectively compensated for its painful losses incurred from investments overseas. As the financial crisis escalated to a global economic washout, meanwhile, CIC retreated to defensive positions and kept a bulk of assets in cash.

At the end of last year, about 87 percent of CIC's assets were held in cash, or cash-equivalent products, according to the report. This helped it outperform most of other sovereign wealth funds and pension funds, said the report.

Since the economic downturn has passed its worst point, the fund is well prepared to set out again and take advantage of global investment opportunities in the future, said Lou Jiwei, Chairman of CIC, in the report.