Statistics released by China's State Administration of Foreign Exchange (SAFE) shows that surplus in China's balance of payments has reached 223.8 billion US dollars in 2005, three times higher than in 2001, indicating the imbalance in the economy is intensifying.

SAFE's Report on China's Balance of Payments in 2005 released Friday said that China's current account surplus accounted for 7.2 percent of the country's GDP, up sharply from 1.3 percent in 2001.

The current account surplus indicates that the domestic savings have surpassed domestic investment and that there was a problem of overcapacity.

Statistics show that China's investment rate has increased to 46 percent in 2005 from 38 percent in 2001, while domestic savings rate from 40 percent to about 50 percent last year.

Residents' savings, corporate savings and governmental savings, the three major parts of domestic savings in China, have all seen a comparatively fast rise in the past few years, the report said.

China's investment mechanism and financial markets are not mature enough to reflect the real cost of capital funds, which naturally will stimulate the investments of businesses, the report said.

The heated investments in some sectors like steel, cement, automobiles and processing have led to overproduction of these sectors, resulting in rising exports and falling imports.

Along with the rise of current account surplus, China has also seen a steady surplus under capital accounts in the past few years. On the one hand, increasing foreign direct investment shows attractiveness of the Chinese market. On the other, some local governments have offered undue privileges to foreign investors, resulting in losses of tax revenues, a negative impact on land resources and the environment, and infringement of workers' interests.

The report predicted that China's balance of payments will continue to maintain a surplus under both current account and capital account in 2006.

In its 11th five-year plan for economic and social development in the 2006-2010 period, the Chinese government has set a goal to basically eliminate the current account and capital account surplus and achieve balanced economic growth.

The task calls for expanding domestic consumption demand and transforming the mode of economic growth. China is to enhance its capability of innovation, deepen reforms of land, resources, environmental protection, social security, and medical care. The state will also readjust its policies on domestic and foreign investment and on domestic and foreign trade to optimize its export structure and expand imports. The country will also improve its financial markets and the exchange rate regime, according to the 11th five-year plan.

Source: Xinhua