In 2003,In the face of austere difficulties and challenges such as epidemic SARS, diversified natural disasters and complicated mutable international situation, our national economy had achieved relatively rapid development, foreign trade had swift growth and direct investment of foreign capital in China continuously kept relatively large scale. On this condition, our current account, capital and monetary items continuously kept favorable balance of trade. The amount of favorable balance on current item is $ 45.9billion, increasing by 30% over the previous year; The amount of favorable balance on capital and monetary items was $52.7billlion, increasing by 63% over the previous year. Propelled by the favorable balance both on current item and capital and monetary items, foreign exchange reserves increased largely by $116.8 billion, and the increasing rate reached all-time highs. The principal feature of balance of payment position of China in 2003 as follows:

(1) Rapid increase of favorable balance on current item

In terms of goods item, the scale of its favorable balance is parallel with that of 2002. According to balance of payments statistics, the amount of our favorable balance on merchandise in 2003 is $44.7 billion, only increasing by 1% over the previous year. Among them, the amount of exports is $438.3 billion and that of imports was $393.6 billion, increasing by 35% and 40% respectively. The high-speed increase of exports in 2003 was attributed to our rapid development of macro economy, the increasing competitive power of our exported products and adjustment of export policy. In another hand, great domestic demand and reduced tariff level contribute to the higher increase of imports. Unlike 2002,the increasing rate of imports exceeded that of exports in 2003; as a result, the increasing rate of favorable balance scale on merchandise in 2003 was less than that of 2002.

In terms of service trade, the scale of service further increased and its unfavorable balance was widened. With the opening of our service industry, and increasingly closed economy intercourse; the scale of service trade extends year by year. The revenue and expenditure of our service trade in 2003 is $46.7 billion and $55.3billion, increasing by 18% and 19% respectively over the previous year. Unfavorable balance on service industry was $ 8.6 billion, increasing by 26% and still had a trend of extend. In terms of concrete constitution, the key factor leading to Unfavorable balance on service industry is transportation business. The tourist trade and other commercial service all realized favorable balance of trade. But, the scale of favorable balance of tourist trade had a little decrease, with a decrease rate of 56%, tourist income decreased by 15% over the previous year, and tourist spending decreased by 1% over the previous year. In addition, our expenditure spent on the fields of computer and message service, proprietary and consultation had a rapid increase, with an evident increase of unfavorable balance.

In terms of revenue item, both the scale of income and expenditure had an increase; the scale of unfavorable balance is less than that of the same period of previous year. In 2003, the income of revenue item is $16.1 billion, increasing by 93%, and the expenditure of revenue item is $23.9billlion, increasing by 3% over the same period of previous year. In 2003, the foreign direct investment in China is mainly concentrated in afflux of capitals and equipment, the reinvestment scale of the profit of domestic foreign-funded enterprises increased slowly, and the expenditure spent on revenue item had a little increase. Because of great increase of income and slow increase of expenditure, the unfavorable balance of revenue item in 2003 was reduced to $7.8 billion, with a decrease rate of 48% over the previous year.

There had a large increase in the favorable balance of current transfers in 2003, and the amount of favorable balance of current transfers was $17.6 billion, increasing by 36% over the previous year, which was far higher than that of former years. The main reason for the large favorable balance of current transfers is the increase of overseas immigrant remittance of our residents.

(2) Dramatic rising of favorable balance on capital and monetary item

The amount of favorable balance on capital and monetary item in 2003 is $52.7 billion, increasing by 63% compared with $32.3 billion in 2002. Main feature of this item is as follows:

Afflux of foreign direct investment in China was stable. Actual absorbing of foreign direct investment in China in 2003 reached $53.5 billion, increasing by 1%. Little increase of afflux of direct investment indicated that, even under the condition of world economy depression in 2003, owing to persistent improved economic structure and high-speed development of economy, China still absorbed a large amount of newly increased capital throughout the world.

The transformation of unfavorable balance to favorable balance on Security investment. In 2003, Security investment industry realized favorable balance at $11.4 billion. In 2003, because financial institutions concerned withdrew capitals instead of increasing overseas security in order to satisfy increasing domestic demand. The measure of cutting down overseas security and adjusting the distribution of assets both home and abroad turned the condition of relatively large unfavorable balance on security investment since 1998. Meanwhile, another reason for the favorable balance of security investment lies in that overseas financing of our enterprises and the absorbing of foreign investment in security had been quickened.

The unfavorable balance on the item of other investment had a rising. The unfavorable balance on other investment item in 2003 is $5.9 billion, compared with 4.1billion in 2002. In 2003, while some financial institution reduced and loaned overseas assets at a call, they also increased other type of assets of foreign exchange, resulting in unfavorable balance on the item of other investment.

(3) Relatively larger increasing of assets of reserves

Propelled by favorable balance both on current account and on capital and monetary item, our international reserves in 2003 had a dramatic rising. Among them, SDRs and reserve position in the Fund increased by $90million and $89million respectively. In addition, foreign exchange reserve increased to $116.8 billion, with a highest increasing rate. By the end of 2003, our foreign exchange reserve reached $403.25 billion.

(4) Net errors and omission occurred on credit side

Based on the unchanged method of making statement of balance of international payments, net error and omission occurred on credit side in 2003, with $18.422 billion, which is equivalent to 2.21% of total amount of imports and exports of goods in terms of international payments balance category, which is reasonable within international requirement limitation.

According to the statement of balance of payments of past years, trade, current transferring and direct investment items have maintained favorable balance for many years, and are the key factors of the whole favorable balance of our balance of payments. While there had an unfavorable balance on service and revenue items, but had far less compared with favorable balance on the item of trade, current transferring. In terms of security investment, there has a persistent relatively larger unfavorable balance, except for relatively larger favorable balance occurred in 2003.

The economy in 2004 have maintained perfect rising trend of development, and the exterior environment of our economic development of 2004 is better than that of 2003. It is estimated that, the trade of imports and exports will keep relatively rapid increase; foreign trade will basically keep balance; the item of service and revenue item will have unfavorable balance, while current transferring item will keep favorable balance; The direct investment of foreign capital in China will increase in a relatively large scale. it is also estimated that we will maintain the favorable balance on both current item and capital item, and there has a stable exchange rate of RMB In 2004.

Balance of payments of China

January-December, 2003

Unit: Thousand dollars