speculative money, China's foreign exchange reserve continued to soar, swelling to $1.43 trillion by the end of third quarter this year. It was a year-on-year increase of 45.1 percent, according to the Central Bank.

The growth rate is 3.5 percentage points higher than in the first two quarters.

It is generally acknowledged the increasing trade surplus is the main driver of the expansion in foreign reserves. China's trade surplus stood at $185.65 billion in the first nine months-already surpassing the whole of last year, the General Administration of Customs said.

The influx of speculative money into the domestic stock and property markets is another reason. The newly established China Investment Corp. has diverted some of the reserves into investment. If not for this, the reserves could be even higher, some analysts contended.

The latest macroeconomic forecast of the CASS claimed the trade surplus could reach $260 billion this year, a new record high, adding pressure to the ballooning reserves.

Abundant foreign exchange reserves are a double-edged sword. The reserves have been considered an effective weapon to cope with internal and external financial crisis-a lesson learned from the late 1990s Southeast Asian financial crisis. However, it is still posing a great challenge to the country's currency exchange rate stability, as other countries are forcing the yuan to appreciate.

More Quota to QFIIs

The CSRC said that China is likely to triple the quota for QFIIs from $10 billion to $30 billion by the end of this year.

The CSRC has pledged to expand the current QFII quota of $10 billion, and after discussions with related parties, the quota will probably be tripled, said Shang Fulin, Chairman of the CSRC, when answering media questions at a seminar of the 17th National Congress of the Communist Party of China.

According to Xinhua, to raise the QFII quota was based on a consensus reached during the second round of the China-U.S. Strategic Economic Dialogue held in May. Industry insiders believed the influx of more foreign funds can help improve the current investment structure, and bring more advanced knowledge of investing philosophies and management patterns to domestic institutional investors.

As of the end of 2006, 52 foreign financial institutions had received QFII licenses, comprising 97.1 billion yuan in stocks in the Chinese A-share market.

High Flying FDI

Statistics from the Ministry of Commerce show that China's paid-in foreign direct investment (FDI) increased 10.87 percent year on year, up to $47.22 billion in the first three quarters. However, the number of newly registered foreign companies declined 6.05 percent to 28,206.

From the beginning of next year, the corporate income tax rate for both domestic and foreign companies will be unified at 25 percent. Before, most of the foreign companies enjoyed a favorable rate of 15 percent.

However, foreign companies registered before 2008 will still benefit from the favorable income tax rate for another five years. The policy, to some extent, encourages foreign companies establish their businesses soon.

A UN report released on October 16 said that China remains the world's third largest recipient of FDI after the United States and the UK. The report also said the FDI inflow slowed last year as the country adjusted its strategies toward attracting foreign capital. China is now emphasizing efficiency and trying to attract more investment in hi-tech and environmentally friendly service industries, as opposed to traditional labor-intensive manufacturing industry.

"We encourage foreign companies to participate in the reform of state-owned enterprises in the central and western regions through mergers and acquisitions," said Qiu Lixin, an official from the Ministry of Commerce.

Numbers of the Week $201.05 billion In September, the total import and export volume of China reached $201.05 billion, and the trade surplus in September was $23.94 billion, $1.04 billion less than that of August, according to the General Administration of Customs. 30.8% China's tax revenue escalated 30.8 percent to 3.72 trillion yuan in the first three quarters, the highest year-on-year growth since 1994, according to the State Administration of Taxation. The figure was almost the same as the total tax revenue for the entire year of 2006.