Zheng said that the growth rate of exports decreased 7.5 percentage points from last year, while the growth rate of imports increased 7.3 percentage points.

　　"Generally speaking it will help reduce the trade surplus," he said, adding that it was processing trade that kept the surplus high.

　　The growing trade surplus has put China under pressure from major trade partners to make progress in balancing imports and exports.

　　Zheng noted that China's imports of raw materials continued to increase at a fast pace in the first half, while exports of high-energy consumption products decreased in this period.

　　For example, China imported some 73 million tons of crude oil, up 15.6 per cent from a year ago, 18.2 million tons of oil products, up 16 per cent year-on-year, and 160 millions tons of iron ore, up 22.9 per cent year-on-year.

　　Meanwhile, exports of coal declined 12.7 per cent year-on-year in the first half of this year. Coke was down 10.7 per cent and alumina was down 20 per cent.

　　"In the past, when foreign investors made profits in China they often transferred the money to other countries, but now due to the improvement of the Chinese market they can make good profits here, so they often reinvest in China," Zheng said, adding this would increase the nation's foreign exchange reserves.

　　But he said the government does not intend to have a high level of foreign reserves.

　　2/3 of FDI in China comes from overseas Chinese

　　Foreign direct investment has been increasing very fast in China, and many people start to worry about the economic security of the country. However, a report by Shen Danyang, vice director of the Research Institute of the Ministry of Commerce, proves that there is nothing to worry about.

　　In fact, over 67% of FDI in China comes from overseas Chinese, thus the stability and technological transferability are guaranteed, and thus FDI will not pose any risks to China's economic security.

　　However, most overseas Chinese enterprises have the channels of their own, and they are prone to exportation. What's more, about 80% of joint-venture manufacturers in China are invested by overseas Chinese, which does contribute to China's great trade surplus.

　　FDI in China tops 63 bln USD in 2006

　　BEIJING, Jan. 15 (Xinhua) -- Foreign direct investment (FDI) used in China in 2006 topped 63 billion U.S. dollars, up 5 percent over the previous year, said Commerce Minister Bo Xilai on Monday.

　　It reversed a downside trend in the first half of the year, Bo said at a national conference on commerce work held in Beijing.

　　The exact contractual value of foreign funds was not available at press time.

　　Bo said China would make effective use of foreign funds and make the service sector a key area to attract foreign investment.

　　Although China has been the largest recipient of foreign investment among all developing nations for 15 years, there is much to be done to improve both of its quality and quantity, Vice Premier Wu Yi has said.

　　China is to channel more foreign investment into research and development centers, new high-tech industries, advanced manufacturing, and the energy conservation and environmentally friendly sectors.

　　At the same time, investment that helps upgrades China's agriculture and traditionally manufacture is also encouraged.

　　While receiving large amounts of FDI, Chinese companies have been actively investing overseas, said Bo.

　　The overseas investment of Chinese multinationals totaled 16.1 billion U.S. dollars last year, up 32 percent year-on-year.

　　Xinhua

　　发布日期：2007-01-16

　　2. What are the advantage and disadvantage of a freely convertible currency? Do you think china will allow RMB to freely float on the international market in next 5 years?

　　China off the Hook...Again

　　Since even before the dawn of the Forex Blog, commentators have been speculating that the US Treasury Department would officially brand China as a "currency manipulator" in its semi-annual report to Congress. Such a label is important because it would enable the US to levy tariffs and other economic penalties against China. However, another report has been issued, and one more time the Treasury Department glossed over China's de facto control over the Yuan. The report did criticize China for failing to appreciate the RMB rapidly enough, since the 12% gains it has racked up over the last two years have been largely offset by inflation. The report also referred to China's widening trade surplus and accompanying growth in foreign exchange reserves. US politicians, however, are less than pleased, and are preparing to take matters into their own hands. The Associated Press reports:

　　"In refusing to brand China as a currency manipulator, which is so obvious, the Administration gives Congress no choice but to act on its own. This report is the strongest case possible for our legislation," said [one high-ranking Senator] Schumer.

　　OECD: Chinese Yuan Still Too Low

　　The Organization for Economic Cooperation and Development (OECD) recently issued a report on the Chinese Yuan, which thoroughly assessed the currency’s appreciation since it was revalued over two years ago. While the Yuan has technically risen over 10% against the USD, the OECD concluded that in real terms, the currency has actually fallen. The official rate of inflation hit 6.5% this year, and international economists reckon the true figure is probably much higher. Furthermore, the government recently revised its estimate for full-year GDP growth to 11.4%, which means price levels may rise further, eating into the real value of the RMB. In fact, the OECD estimates that the Yuan remains undervalued by as much as 40% and views the solution as a combination of tighter monetary policy and looser exchange rate policy. The Associated Press reports:

　　While the report did not directly criticize China's foreign exchange controls, it noted that efforts to tighten money supply to counter inflation were not having much impact.

　　China Trade Surplus Sets New Record

　　Despite, or perhaps because of the appreciating Yuan, China's trade surplus with the US is growing by 50% on an annualized basis, and is set to surpass $250 Billion for the year. In theory, the more expensive Chinese currency should reduce US dependence on Chinese exports and narrow the trade imbalance. In practice, the US is actually importing a greater quantity of goods and services from China and is also paying higher prices because of the appreciating Yuan. Ironically, the US Treasury Secretary is scheduled to discuss this matter with his Chinese counterpart next week, and is expected to pressure China to appreciate the RMB even faster against the Dollar. Unfortunately, China's hands are partially tied as a result of an agreement it already signed with the EU, under which it promised to appreciate the RMB against the Euro. Bloomberg News reports:

　　Under the current regime, the yuan is allowed to move as much as 0.5 percent against the U.S. dollar every day, from the previous limit of 0.3 percent. "There will be a broadening of the trading band again in the next few months," said one analyst.

　　Why China Should Not Dump the Dollar

　　In fact, China may have to increase its exposure to the dollar, according to the comments of Brad Setser of the Council of Foreign Relations: "In my mind, so long as China resists more rapid appreciation of the renminbi versus the dollar, it's rather difficult for China to spanersify in any meaningful way against the dollar. If China really started to spanersify away from the dollar, I think it's a big enough player that it would put downward additional pressure on the dollar."

　　And additional downward pressure on the USD should be what China is trying to avoid. China, being the largest exporter to the U.S. does not want to see appreciation of its currency against the USD, as that would make its goods more expensive (and therefore less competitive) in America.

　　In fact, Setser goes on to say that in order to prevent the USD from sliding even further downward against the RMB, China would have to not only retain its present stock of USD, but in fact buy even more.

　　Chinese Yuan Reaches Milestone