By the end of the year, China's foreign exchange reserves will likely exceed $1 trillion. This is a huge amount of money, about 43% of China's gross domestic product, and easily the largest reserve stockpile in the world. It is also far more than China needs. Yet with the mainland absorbing some $20 billion to $30 billion worth of capital inflows a month from its trade surplus, foreign direct investment, and other sources, there seems to be no stopping it.

The Chinese money machine raises two big issues. Much attention has been focused on how best to stop the reserves from increasing further and whether Beijing financial authorities should let the yuan appreciate. Let's put that debate aside for the moment and dwell on another more interesting question: What should China do with all this money?

This topic has triggered a lot of debate in China. Discussion has focused on whether China should buy fewer U.S. government bonds, just in case the dollar falls in value and China is left with less valuable securities. Some analysts and quasi-government types have floated the idea of buying oil and other raw materials, given China's obvious needs. Today, though, I am going to propose a few different ideas about how China might use its newfound wealth. I've come up with eight ways of spending a small portion of that $1 trillion.

Easy To Manage.

Before telling you what they are, let me explain the rules I observed when I came up with them. First, this money belongs to the Chinese people, so each item I buy has to bring obvious benefits to the people. Second, China does need to use the reserves for very serious things like restructuring the financial system and generally defending against any economic crisis, so I have limited myself to just spending $12 billion.

I didn't want to add to the pressure on the Chinese currency to appreciate. I have tried as much as possible to spend dollars, so that the money would flow overseas while the benefits stay in China. Also, I've veered away from things that would be tricky to buy and complicated to manage, so I'm not suggesting Beijing buy any Fortune 500 firms.

And finally, I'm putting aside a classic criticism that an economist might make -- that a country's FX reserves back the domestic money supply and so should be kept just in case of a run on the currency. It is very hard, though, to imagine that the People's Bank of China (PBOC) would struggle all that much if $12 billion in reserves were diverted elsewhere.

So, for what they're worth, here are my eight ideas:

Import university professors. This is actually the idea of a friend of mine at the PBOC, and I think it's great. It's simple: Pay 20,000 foreign university teachers (all with PhDs from decent schools) $100,000 per year each to come to China and teach for two or three years. Most of them will save the money and take it home with them, which would lower the reserve, and this would be a great way of raising teaching standards at China's universities, particularly at the research level.

At present, many students who leave Chinese schools go overseas to university -- because they are seeking a better quality education. Less fortunate Chinese students, however, would benefit from this better quality teaching, and more of the Ministry of Education's budget could be spent on improving facilities. Total cost: $2 billion a year.

Import more primary school teachers. Do exactly the same thing at the primary school level. One of the problems China's rural sector suffers from is underfunded primary schools. So again set up a fund and import 20,000 primary school teachers and pay them centrally, thus allowing schools to focus their limited funding on books, buildings, and so on. If you pay teachers $100,000, you will be sure to get good ones. Total cost: $2 billion a year.

Establish a China fund. Create a hedge fund company operating under the People's Bank's holding company, SAFE Huijin, in Shanghai. Hire 15 of Wall Street's most experienced money managers to run it and hire 30 of the most promising students coming out of China's universities to staff it.

The hired guns from Wall Street would be pricey, and you would have to give them complete freedom. The advantage to China would be not only the earnings, but that large numbers of young Chinese traders will rapidly learn how to manage international money properly. Given recent scandals involving mainland state-owned companies' poor investments overseas, this would be helpful. Total cost: $3 billion for the fund, plus salaries.

Start a China Peace Corps. Remember U.S. President John F. Kennedy's vision of sending out volunteers from U.S. colleges into the developing world to teach, work in hospitals, and build roads? The program has been an enormous success, not only in helping developing countries, but also by broadening the vision of young Americans -- helping them understand the outside world and helping them to grow up.

China is on the verge of becoming a major world power, and its young people would undoubtedly profit from seeing more of the world than the shopping emporiums of London, Paris, and New York. So send 10,000 volunteers a year into Africa, Latin America, and the poorer parts of Asia. Total cost: $1 billion.

Organize a weekly lottery. Tickets would run about 10 yuan, and the government could hand out 50 prizes a week. The payoff: two round-trip tickets and $10,000 in spending money for a holiday to the U.S. or other overseas destinations. Winners would have to provide receipts to prove they have spent their money overseas. This would not only give a lot of people who normally do not travel a holiday overseas, but it would also help reduce China's foreign currency reserves a bit. Total cost: $40 million a year.

Donate to the Bill and Melinda Gates Foundation. Warren Buffett has just donated $30 billion of his personal fortune to this nongovernmental, well-run foundation that funds research on malaria, HIV/ AIDS, and education. China would benefit from this, too -- and a donation would be a great way of showing that Beijing is serious about playing a new and responsible role in world affairs. Total cost: $1.5 billion.

Affordable housing. Recruit and fund some first-class Asian real estate developers to build low-income housing on the outskirts of China's major cities. One of the problems with China's real estate sector at present is that developers do not have any incentive to build housing for low-income people. Create one by using these funds to make it profitable. Total cost: $2 billion.

Build a first-rate soccer team. China seems to have enjoyed the World Cup a lot, but my friends here despair of the quality of the national team. (Being English, I can of course sympathize.) So let's do two things. First, import 30 world-class players, spreading them around the top 15 Chinese teams.

The total player payroll (including wages and transfers) in the English Premier League in 2003-2004 was just over $1.8 billion. So it would probably cost $500 million in China. This would at least bring some enjoyment to football fans each week. Second, spend $5 million and import 50 of the world's best coaches so that young players get some decent training at the clubs. Total cost: $505 million.

My shopping spree has cost $12 billion, the equivalent of two weeks' foreign currency inflow into China these days. There are many other possibilities, including importing environmental technologies to clean up China's air and water, or buying medical equipment. Some of my ideas are, I admit, better than others.

All the problems I've addressed would require much more than money to solve permanently. And a good idea could just as easily be funded by the government's budget, rather than by the reserves. All that said, it does seem a waste not to think hard and imaginatively about how to use a small proportion of $1 trillion in reserves to do some good.

Courtesy of Business Week