The value of the yuan is slowly rising against the dollar

Its reserves have ballooned in recent years as the central bank has bought most of the dollars generated by foreign trade and inward investment.

Although its strategy has helped to dampen inflation and hold back the value of the yuan, it has annoyed China's trading partners.

They feel the yuan is undervalued and creates an unfair trading environment.

Japan has the world's biggest foreign currency reserves, with $846.9bn, but at the current rate of growth, China's reserves could overtake it, hitting $1 trillion this year.

China revealed last week that its trade surplus with the rest of world had more than tripled to $102bn in 2005, up from $32bn in 2004.

Liberalising the yuan

The world wants China's cheap goods

Last year, Beijing revalued the yuan for the first time in a decade, allowing it to appreciate against the dollar within a narrow trading band.

Earlier this month it rose to its highest level, at 8.06 to the dollar, after China started setting its core daily value according to an average of quotes from 13 banks, including Citibank, HSBC and ABN Amro.

But Beijing will still only allow the currency to rise or fall by 0.3% a day against the dollar.

It has repeatedly said that it wants to liberalise the yuan at a slow pace, so as not to risk destabilising the Chinese economy.

Rob Subbaraman, from investment bank Lehman Brothers in Tokyo, said the latest foreign reserves data would give more ammunition to US critics calling for a stronger yuan.

"You have an economy that has just turned out to be bigger than everyone thought," Mr Subbaraman said.

"It's growing around 10%, and you have reserves growing to new record highs every month.

"That's providing a lot of arguments for China to move a bit quicker on the currency front."

Revised government figures released last week showed that China's economy grew by an average of 9.9% between 1993 and 2004.