In 2004, the current account and the capital and financial item continued surplus, in which the surplus of the current account was $68.659 billion (50% more than the last year) and the surplus of the capital and financial item was $110.66 billion (110% more than the last year). Driven by the dual surplus of the current account and the capital and financial item, our foreign reserve grew to $206.681 billion, the increment of which was the highest ever since.

1. The surplus of our current account grew fast.

The surplus of the goods item had grown compared to 2003. According to the international statistical standards, in 2004, our trade surplus of goods was $58.982 billion, increased by 32%; among which $593.393 billion were the export and $534.41 billion were the import, increased by 35% and 36% respectively.

The fast growth of China’s import and export was attributed to the recovery of the global economy and high-speed development of the domestic economy. In 2004, the main body of the global economy recovered, together with increasing market demand. Meanwhile, the reform of the export rebates mechanism solved the problem of its default and proved the fund status of the export-oriented enterprises. As the international economic conditions were turning good, and influenced by the positive factors like entering the WTO, our export business had increased relatively fast. As to the import, the further strengthened macroeconomic regulation accompanied by the steady increase of the import demand enabled the increasing speed of the whole year import to be balanced with the export. Stimulated by the domestic investment, the lowered tax rate, the enlarged quota and the rising international prices of the primary energy and non-energy products, our export sustained a fast increase at the beginning of 2004. In the second half of the year, the policy effect of the macro regulations began to reveal, and the export demand then fell back a little and the import structure adjusted in some degree.

The scale of our service trade had further expanded. As the opening up of our service realm and the closer economic and personnel interactions, our service trade scale had been growing year by year. In 2004, the income and the expenditure of the service trade of our current account reached $62.434 billion and $72.133 billion, increased by 34% and 30% respectively. The deficit of the service trade began to increase, attaining to $9.666 billion, 13% more than the last year.

Seen from the concrete composition, the transportation item was the main reason for the deficit of service trade. In 2004, our transport income was only $12.067 billion and the cost was $24.544 billon, with a deficit of $12.476 billion, $2.15 billion more than the last year. The expenditure of the international tourism was $19.149 billion, increased by $3.963 billion; and its trade surplus was $6.59 billion, increased by $4.371 billion. Compared with 2003 (in which the revenue from international tourism had decreased $3 billion by 14.6% because of the SARS), our revenue from international tourism was presenting a recovery increase trend in 2004.The income was 5.354 billion dollars more than 2002, and the expenditure increased by 3.751 billion dollars.

Besides, the deficits of the insurance service, the patent royalty and proprietary technology and the consultant were relatively large. In 2004, the deficit of the insurance service attains $5.743 billion, increased by 35%; the deficit of the patent royalty and the proprietary technology fees was $4.26 billion, increased by 24% and that of the consultant was $1.581 billion, increased by 1%. The enlarging of the items’ deficits indicates that as our promises to the WTO come down to earth, the competitive power of our service industry need to be enhanced.

The deficit of the capital gains had decreased to some degree. In 2004, our capital income was $20.544 billion, increased by 28%; and our capital expenditure was $24.067 billion, increased by 1%. Our foreign capital gains had increased relatively fast in 2004. Meanwhile, as the foreign direct investment had been increasing all the time, the remit profit of the revenue increased a little, but the reinvestment scale of the revenue was relatively small. The increasing revenue and the moderate increasing expenditure made for 2004 deficit of the capital gains of $3.523 billion, decreased by $4.316 billion.

The incoming of the current transfer increased fast. In 2004, the surplus had reached $22.898 billion, 30% more than the last year and much higher than all pervious years. In this $22.898 billion, the incoming was $24.326 billion and the outgoing was $1.428 billion. The increase of the overseas remittance income of our residents was the primary reason for the large surplus of our curry transfer.

2. The massive increase of the capital and the financial item surplus.

In 2004, the capital and financial item realized a surplus of $110.66 billion dollars, 110% more than the $52.726 billion surplus of the corresponding period of the last year. The main characteristics of this item come as follows.

The foreign direct investment in China had increased considerably. In 2004, the actual attracted foreign direct investment had newly increased by $60.63 billion, increased by 13%. The outflow of the foreign capitals by withdrawing their funds and by liquidation attained $5.694 billion. The net inflow of foreign direct investment was $54.936 billion, increased by 17%.

As our promises to the WTO come down to earth, and because of our relatively cheap labor force resources and our capacious market potential, the foreign direct investment continues a steady increase. Seen from the industry structure, the high and new technology fields like the equipment manufacturing and electric machine and appliance manufacturing continue attracting more and more foreign funds. Seen from the countries and the areas of origin, the direct investment ratio of Hong Kong, Japan and Korea accounted for more than 75% of the total newly increased direct foreign investment in China.

The security investment surplus had increased by a large amount. In 2004, we had a surplus of $19.69 billion (increased by 72%) in the security investment item, among which the reflux of our overseas stock investment fund was $6.486 billion and the attracted overseas stock investment funds were $13.203 billion.

In 2004, domestic institutions’ reducing their offshore securities caused they had fund flow reversal of $6.486 billion, $3.503 billion more than in 2003. Thereinto, domestic financial institutions were the main force that reducing offshore security capitals, reflecting that our financial institutions have been adjusting the matching of their domestic and overseas capitals and optimizing their foreign investment capitals in recent two years.

The net inflow of the debt of our security investment was $13.203 billion in 2004, and it mainly related to the quickening paces of our enterprises’ overseas fund-raising and the foreign investment in domestic securities. In 2004, the net inflow of our overseas fund-raising for our stock capitals was $10.923 billion (increased by $3.194 billion), accounting for 83% and for bonds was $2.28 billion (increased by $1.566 billion), accounting for 17%. Seen from the principal part of the agents for security fund-raising, domestic enterprises had newly collected funds of $8.483 billion from overseas market, qualified overseas institution investors had brought along a net capital of $1.882 billion and the other inflows of stock capitals were $558 million. Seen from the main issuers of the bonds and their terms, they were mainly medium and long run securities issued by government sectors and Chinese banks.

Other investments had turned to surplus from deficit. In 2004, other investments had a surplus of $37.908 billion, which used to have a deficit of $5.882 billion. The main reason was the booking of the $45 billion international reserve influx in the debtor (representing the capital outflow) at the end of the 2003. In 2004, however, such special occurrence did not reappear; the other investments item presents some kind of a surplus, in which the net inflow of the asset had $1.98 billion, primarily because of the general backflow of our domestic institutions’ overseas capitals and a net inflow of $35.928 billion in the debt item, which had something to do with our relatively fast increase of short-run our foreign debts. Especially in the first half of 2004, our short-run foreign debts had increased distinctively because of our quick developing economy and the expected rising value of Renminbi; but the increasing size of the whole year’s foreign debts  was controlled to certain degree as relative policies like the Administrative Measures for Foreign Debt of Foreign-funded Banks in China had carried out.

3. Our capital reserve had a relatively large increase.

Pushed by the dual surpluses of the current account and the capital and finance item, our international reserve had increased swiftly, among which the special drawing rights increased by $161 million, the reserve position in fund organizations deceased by $478 million and the foreign exchange reserve increased by $206.681 billion, more than the increment of $116.844 billion in the last year. By the end of 2004, our foreign exchange reserve had reached a scale of $609.932 billion.

4. The net error and omission was on the plus side of the account.

Under the unchanged way of the organizing the balance of payments statement, a net error and omission of $28.045 billion appeared on the plus side of the account, accounting for 2.4% of the import and export goods under the balance of payments caliber, within the internationally recognized rational range of 5%.