There has been a sustained rise in foreign direct investment (FDI). China put into use $63 billion of FDI in 2006, with about 70 percent of it allocated to the manufacturing sector, and so it has become a vital global manufacturing center, and firms from overseas have enhanced their status in China's foreign trade. On the one hand, foreign firms gear their production to the domestic market and their products replace some of China's imports, with an obvious change seen in the imports of rolled steel, autos and parts, machinery equipment, consumer electronics and urea. On the other hand, China's domestic market is limited, and foreign firms also have huge import demands themselves. In recent years, the ratio of their exports has accounted for around 60 percent of China's total export volume, and there is still an inclination to further increase from year to year.

China's trade surplus is also related noticeably to three short-term factors. First, some enterprises had made rush exports before the tax rebate or refund rate was adjusted; second, expectations on appreciation of the local currency oblige enterprises to boost exports and, third, the much higher cost of export products lifts the prices for export commodities. Furthermore, a few developed countries and regions have banned exports of precision and hi-tech products to China. This has resulted in a shortfall of hi-tech and equipment imports urgently needed for China's national construction and the upgrading of its relevant industries.

Many people are much concerned about China's huge trade surplus. What is your view?

The prolonged existence of a trade surplus is determined by China's policy on use of foreign capital and the country's current trade structure. To tell a nation whether its trade is balanced or not, one often uses a conventional method to compare its trade surplus (or deficit) to its total import and export volume. If their gap is within a range of 10 percent, it is taken as basically normal, so the 10-percent limit is cited as a "cordon." China's trade surplus in 2006 was $177.5 billion, accounting for 10.1 percent of the aggregate imports and exports in the year, barely touching the "cordon." So, China's enormous trade surplus can be said to be basically normal.

What measures should China take to cope with the problems arising from its hefty trade surplus?

The immense trade surplus has inflicted new headaches upon China, such as growing trade disputes with its principal trading partners, rising risks for its export enterprises to encounter trade barriers on overseas markets, and stepped-up global pressure on its management of foreign exchange reserves, as well as hidden risks for inflation in its domestic economy.

To cope with these problems, efforts should be taken not only to transform the mode of export growth, but also to expand domestic consumption. First, it is important to increase imports and boost the consumer market at home. For this purpose, the social security system should be improved to stimulate consumption. Second, efforts should also be made to upgrade the processing trade and, by capitalizing on the expansion of the trade, to restrict the production of commodities listed under the restrictive categories. Furthermore, some essential adjustments should be made with respect to the policy on use of capital from overseas. Among other additional measures, China's exchange rate regime should be further improved, while some substantial measures have to be taken to improve the export mix, increase imports and optimize the import and export structure.