China has to keep investing abroad -Cheng Siwei

* China has to keep making foreign investments - Cheng * Should prefer tangible assets to financial ones * SWFs eye resources opportunities overseas

China, the world's No. 3 economy, has to keep making overseas investments, although it should avoid financial assets for the meantime, an influential former Chinese lawmaker, Cheng Siwei, said.

"With China's huge amount of foreign reserves, at $1.95 trillion, the country has to make overseas investments, apart from investing in U.S. Treasuries," Cheng, who was until last year vice chairman of China's top legislature, told Reuters in an interview in London this week.

China, the biggest foreign owner of U.S. Treasury bonds, is keen to diversify the investments made using its huge pool of foreign-exchange reserves, but is cautious after the global financial crisis has left it nursing some steep losses.

Cheng -- who is 73 years old -- said the country should steer clear of buying more financial assets until "a new financial order" was established.

"We don't know when the financial assets will reach their bottom levels. And we are not experienced in investment banking businesses. So we better focus on tangible assets," he said.

Last year, China surpassed Japan as the largest foreign owner of U.S. Treasuries, as its holdings rose 46 percent to $696.2 billion. To diversify, China launched a sovereign wealth fund, China Investment Corp. (CIC), in 2007.

Outbound mergers and acquisitions (M&A) by Chinese companies leapt 64 percent last year to $47.8 billion, Thomson Reuters data showed.

After the collapse of Lehman Brothers, CIC's already underperforming investments in Blackstone and Morgan Stanley plunged even further, prompting it to stay largely in cash.

Meantime, China's State Administration of Foreign Exchange (SAFE) is becoming more inward looking to support domestic development after losing money in collapsed U.S. bank Washington Mutual and Texas Pacific Group.

Some, however, see the downturn in commodity markets as a golden opportunity for China to acquire raw material assets and invest in resource companies cheaply.

Cheng cited Chinalco's $19.5 billion investment in Rio Tinto as an example of focusing on tangible assets, which would bring long-term gains even if there were disagreements about the purchase price.

The country is considering a range of ways to invest overseas, including dedicated funds to invest in minerals and energy, while the state pension fund plans to put up to a fifth of its money into foreign assets.

China's state metals trader, Minmetals, has proposed using reserves to buy mineral resources overseas, while CIC is evaluating global mining investments and a fund for energy exploration and acquisitions overseas is under consideration.

The fast-growing National Social Security Fund (NSSF), which has some 563 billion yuan ($82.33 billion) of assets, intends to increase foreign investments to as much as 20 percent, from its current 6 percent.

After stepping down from the Standing Committee of the National People's Congress (NPC), Cheng now heads a research centre at the Chinese Academy of Sciences, a think tank under the State Council.

By Daisy Ku

LONDON, March 6 (Reuters)