At the 2007 China Industry Development Report Conference, Fu Ziying, Assistant Minister of Commerce, gave a speech on China's foreign trade and investment policies in promoting the country's international balance of payments.

From 2001 to 2005, China enjoyed an annual foreign trade growth of 24.6 percent, with exports and imports growing at 25 percent and 24 percent respectively. China became a big trading nation with its trade volume rising from sixth in the world in 2001 to third in 2005. The trade volume in the first three quarters of this year reached $1.27 trillion, up 24.3 percent year on year, of which exports were $691.2 billion and imports were $581.4 billion, up 26.5 percent and 21.7 percent, respectively, year on year. It is predicted that the total trade volume in 2006 will amount to $1.7 trillion, increasing more than 20 percent.

The commodity structure of exports and imports is improving. In recent years, China's exports of electrical and machinery products and hi-tech products have boasted faster-than-average growth and their proportion among total exports is increasing. In the first three quarters of 2006, exports of electrical and machinery products accounted for 56.2 percent of total exports, while the share of hi-tech exports was 28.3 percent. China became one of the biggest sources of information technology products in the world. At the same time, China's imports of sorely needed energy, raw materials, advanced technologies and key equipment also went up rapidly.

Since China entered the WTO, foreign businesses have been more optimistic about the investment environment in China. Paid-in capital exceeded $50 billion in 2002 and surpassed $60 billion in 2004. In 2005, the figure increased to $60.3 billion, accounting for 6.6 percent of the total global foreign direct investment (FDI). In the first three quarters of 2006, paid-in capital stood at $42.6 billion and is expected to reach about $60 billion at the end of the year.

The service industry has become a new growth point in terms of FDI inflow. While China is honoring its WTO commitments, market opening has been particularly quick in such service sectors as distribution, banking and insurance. Together with the rapid expansion of global outsourcing, FDI in China's service industry is growing fast. In the first three quarters of 2006, FDI in the service industry grew 9.8 percent. In comparison, FDI in the manufacturing industry declined 9.4 percent.

China's outward investment is rapidly expanding. In 2005, the outward direct investment of Chinese non-financial enterprises amounted to $12.3 billion, 1.2 times the figure a year ago. In the first three quarters of 2006, China's total outward direct investment reached $14.1 billion, up 1.8 times year on year. It is expected that the figure in 2006 will reach $16 billion.

However, according to Fu, the international payment imbalance as a result of the rising foreign trade surplus in the last two years has aroused extensive concern at home and abroad.

China had a trade surplus of $102 billion in 2005. In the first three quarters of 2006, the trade surplus already hit $109.8 billion, and is expected to reach $140 billion for the whole year. In terms of the international balance of payments, the surplus in the first three quarters was $240.1 billion, including a current account surplus of $177.5 billion and a capital and financial account surplus of $62.6 billion. By the end of September 2006, China's foreign exchange reserves had hit $987.9 billion.

In explaining the reasons, Fu believed that first the current international payment imbalance is a result of economic globalization.

The international industry transfer has brought a surplus to China. Since the 1990s, economic globalization has deepened, with more specific international division of labor. The international industry transfer has also led to the continuous inflow of foreign investment into China.

Moreover, the current international payment imbalance is closely related to China's development stage.

China is now at the stage of rapid industrialization, which is also a key reason for its trade surplus. Experiences of advanced countries indicate a certain inevitability of trade surplus during periods of rapid industrialization. China is just now going through this stage of fast technological advancement and industry upgrading. The constant expansion of production capacity has not only laid a solid foundation for sustained fast growth of exports, but also played a role in substituting imports to some extent. Meanwhile, for various reasons, China is suffering from a relatively low consumption demand, which also gives rise to the trade surplus.

Another important reason for the capital account surplus is that China is still at the preliminary stage in outward investment. China's balance sheet of international payments shows that the capital and financial account surplus is mainly attributable to the small number of Chinese outward investments, rather than a big FDI inflow. At present, Chinese enterprises are not strong enough to make large investments abroad. Although China's outward investment is growing fast, the investment volume is only about $10 billion every year, less than 2 percent of the overall global cross-border investment, much lower than the figure in developed countries.

Fu believed that China's international payment imbalance may persist for a long time.

Owing to the huge differences in the economic structure and development level of different countries, as well as their comparative advantages, it is hard to keep a balance of incomes and expenditures in international economic exchanges. Therefore the international payment imbalance has become a normal state of economic operation.

Judging by the trend of world economic development, economic globalization will continue, and the world economic structure will not undergo fundamental changes. Therefore the global economic imbalance cannot be redressed in the short run. The international division of labor will be further intensified, which means China will continue to be a world processing and manufacturing base for a long period of time, which will naturally result in the long-term trade surplus of the country.

Further, China's problem of international payment imbalance should be settled in the course of development. To realize the basic balance of international payments is one of the macro- control targets. However measures to redress the international payment imbalance should not run counter to promoting economic growth, increasing employment opportunities and keeping prices stable.

According to Fu, balanced and coordinated development is the long-term goal of China's foreign trade and economic policy, including: to promote the international balance of payments through macro-control policies; to promote trade liberalization and facilitation in line with economic globalization; to expedite the transformation of the foreign trade growth mode so as to improve the efficiency of trade growth; and to attach equal importance to the strategies of "introducing FDI" and "going global" policies to maintain coordinated progress in FDI inflow and outward investment.