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VII-4 Question
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VII-4 Question: In the past two years, China had hundreds of billions of dollars of trade surplus each year. The Chinese balance of international payments has been running high and causing much attention both at home and abroad. What are the major reasons behind the international payments imbalance? What will China do to reverse this trend?

A: It must be pointed out that China's favorable balance of payments is a result of economic globalization. Compared with other countries, China has comprehensive advantages to benefit from international industry shift and to attract foreign capital. The international shift of industry has led to a constant inflow of transnational investment into China. Moreover, China is at a stage when industrialization has been developing rapidly. The ever-expanding production capacity lays a solid foundation for constant and fast export growth and, to some extent, has substituted imports. Meanwhile, for various reasons, China's domestic consumption is relatively underdeveloped, and domestic companies are reluctant to invest abroad. Those factors also add to China's favorable balance of payments.

The favorable balance of payments is not what China is searching for. For a huge developing country like China, maintaining a balance of international payments and a relatively adequate foreign reserve will help boost stable economic development, enhance the comprehensive national strength and raise the country's ability to counter risks. But we've already realized that the favorable balance of international payments has led to excessive liquidity, swelled prices of assets, and caused over investment. It also poses potential pressure to the stability of consumer prices and the monetary policy. If things go on like that, it will exert negative influence on the sustainable and healthy development of the national economy.

Currently, the favorable balance of international payments has become a critical problem for the Chinese macro economy. To balance international payments has been listed as one of the goals in terms of achieving social and economic stability. Therefore, in the next few years, China will coordinate finance, currency, trade, industry and investment policy in a proper manner; optimize the structure of commodity imports and exports through policy levers and industry guidance. We will help change the quantity-oriented exports to quality-oriented, increase the exports with independent intellectual rights and with high added value. We encourage imports of advanced technology, important raw materials and equipment and facilities. In addition, we will steadily expand the opening of the country's service trade.

Meanwhile, China will reform its medical service industry, education and housing sector, stabilize consumers expense expectations. China will be devoted to improving income of farmers and lower-income groups so as to boost their consumption ability. China will expand consumption sectors, and improve the consumption environment in order to satisfy the various demands of urban and rural residents.

If these measures take effect, China will hopefully achieve a basic balance of tradein two or three years.


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