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China plans several measures to contain international surplus

China will increase imports of raw materials, allow domestic institutions to invest abroad and accelerate the development of its foreign-exchange market, seeking to contain a ballooning international surplus.

"The domestic and international economy will fare smoothly in the second half of 2005," the State Administration of Foreign Exchange said yesterday in its first semi-annual balance of payments report, posted on its Web site.

"China will run a significant international surplus for the full year and foreign reserves will increase rapidly," it said.

China ran a current-account surplus of US$67.3 billion in the first half, while the surplus in capital and financial accounts amounted to US$38.3 billion, according to the report. China's foreign-exchange reserves totaled US$711 billion as of June 30, while foreign debt stood at US$266 billion.

The country's trade surplus swelled sevenfold to US$80.4 billion in the first 10 months of this year, aggravating tensions with the US and the EU, its biggest trading partners. In an attempt to narrow the surplus, the government said it plans to import more raw materials, scarce resources and high-technology products.

The government will offer preferential policies to attract more foreign direct investment to its mid-west hinterland and gradually allow domestic institutions to invest in securities abroad, the report said.

The foreign-exchange regulator reiterated the government's intention to improve its managed floating foreign-exchange mechanism and maintain the "basic stability of yuan on a reasonable level."

The yuan closed at 8.0815 against the US dollar on Friday after the government announced plans to add market makers to its inter-bank foreign-currency market, a further step toward a freely traded currency.

Yuan forwards traded in Hong Kong fell after the central bank offered the swap at a lower rate than signaled by the market.

The yuan would climb to 7.7895 against the dollar in a year if freely traded, according to forward contracts in Hong Kong.
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