Your recent article at Asia Time Online has accurately grasped the sentiments and on-going discussions about the potential risk of holding large US Treasuries, in my opinion.
In the area of economics and financial matters, there are close interactions between the public discussions and debates and China’s policy making, as have been known for years. Mr. Wen’s publicly expressed “worries” about the risks of China’s large Treasuries holdings reflects the current on-going discussions.

Chinese officials have recently publicly said that they are thinking of ways of using the fx reserves to serve domestic needs. The series of natural resources deals signed in February indicate that this is not mere lip service. China has also sent two trade missions to Europe recently, one for procurement, the other for potential acquisition. The heightened activities reflect the urgency and anxiety of China’s policy-makers.

Also, as HZ proposed above, China actually has engaged in a number of deals in Africa where China would package a natural resource deal with infrastructure building for the host country (e.g, a 30-year mining agreement combined with low-interest loan to build local roads, schools and hospitals paid for with income from the selling of the natural resources). I remember there was a similar deal with Argentine (or Brazil) a few years ago. We may see more of the similar deals.

From the above, it may not be too difficult to sketch out China’s diversification strategy:

Large-scale natural resources deals – As world’s largest commodity buyer, it’s a good strategy to lock-in long-term natural resource supplies
Procurement of commodity and capital equipment – According to Phoenix TV network in Hong Kong, China has completed its first stage of strategy oil reserves with all the oil bought at the recent low price. China is now in the process of selecting and constructing sites for the second stage oil reserves. The European procurement trip also reflects such a strategy.
Overseas acquisitions – China can acquire stake in or outright acquire natural resource companies if the political climate permits. In selected industries, China may also finance its corporations in making foreign acquisitions – the recent second European trade mission is such an example.

Notably, China has entered into currency swap agreements with a number of neighboring countries/economies, including South Korea, Hong Kong, Malaysia, and Belarus. These agreements are experimental in nature, but can be considered that China is preparing for a world when dollar may not be the only reserve currecy.

I believe that as it increases its purchases of non-dollar assets, including hard assets as in its resource buys, its exposure to the dollar will fall significantly from where it is today. I think China’s getting burned by U.S. assets, as Brad has documented, has only dramatically increased its urgency and determination to reduce its exposure to the dollar, but doing so in a mostly opaque manner, and without risking triggering a dollar panic.

The problem with present and ongoing analysis of the makeup of China’s reserves and its actions regarding those reserves is that almost the entire matter is clouded by China’s opaqueness. Therefore, present analysis has to rely on whatever traces of China’s actions can be garnered from various reports, surveys and the like, combined with best-guess analysis. I’m not criticizing that process of analysis – I’m just reminding everyone that it is not at all conclusive. It assumes we know, or can know, more about the composition of China’s reserves than China itself lets be known. We don’t know what diversionary tactics China may be employing to throw us off the accurate trail. Hence, I would caution everyone not to come to a firm conclusion (China is between a rock and a hard place) based on the available ‘evidence’, such as it is. That evidence is really mostly soft and only tentative, and subject to ongoing alteration as new, hard evidence emerges.

I think one important clue as to China’s options to significantly reduce its exposure to the dollar is its policy of resource buys, which it is ramping up. I repeat my caution – we may well discover, down the road several months, that China ‘fooled us’, that it did have viable options, and that it undertook diversification out of the dollar without our being able to discover the fact.