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Imbalance of International Payments - A Serious Problem
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China still faces serious problems posed by an imbalance in international payments despite its efforts to reform the forex management system in the first half of the year.

It remained a difficult task to achieve a satisfactory international balance of payments, said Hu Xiaolian, director of the State Administration of Foreign Exchange (SAFE), at a recent symposium.

Last year the surplus in China's balance of international payments was 223.8 billion U.S. dollars. In 2004 it was 110 billion. SAFE statistics show that China posted an increase of 76.3 percent in its contracted overseas direct investment funds in the first half year.

China continued to support its businesses in broadening capital outflow channels, said Hu. The government had abolished the purchase quota of foreign exchange in overseas direct investment to encourage more outflow of capital. Hu attributed the surplus to the rapid growth of the open economy but observed that it also reflected problems in China's economy.

To reach a satisfactory balance of international payments would require change to the mode of economic growth, adjustment of the economic structure and increasing domestic demand, said Hu. That would be a long and gradual process.

The official asked concerned departments to tighten supervision over cross regional capital flows especially those in the short term. The reform of the forex management system should be deepened to allow conversion of the Renminbi in capital accounts.

(Xinhua News Agency August 11, 2006)

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