But closer monitoring of its chronic massive surpluses is necessary to prevent possible disturbances to short-term capital flows.

In an analysis published yesterday following the release of the 2002 balance of payments data earlier this month, the State Administration of Foreign Exchange (SAFE) examined the factors contributing to last year's situation that was "sound overall."

It also gave a preliminary 2003 forecast pointing to a "somewhat smaller" current account surplus.

China's foreign exchange reserves rose to US$286.4 billion at the end of last year as export surges doubled its current account surplus.

This brought a key foreign debt safety barometer -- short-term foreign debt divided by foreign exchange reserves -- down to 19 per cent and "far below the 100 per cent international alarm line," the administration said.

The "sound" international balance of payments situation is conducive to deepening the economic and financial reforms, readjusting the industrial structure and promoting healthy economic growth.

The most noticeable change last year was a rare shift to the positive under Errors and Omissions, an item on the balance of payments sheet that often reflects unreported and irregular fund flows.

"It was all net outflow in previous years, but it was net inflow last year," noted San Feng, an analyst with the State Information Center.

"That reflects the rosy outlook for renminbi. Its exchange rate is firm, interest rates (on reminbi deposits) are higher than the US dollar, and confidence in the currency is strong."

China's Errors and Omissions registered a US$7.8 billion surplus last year compared to a US$4.9 billion deficit in 2001 and a deficit of US$11.9 billion in 2000.

The analysis also highlighted "negative factors." Surpluses, when mostly based on exports of resources, may undermine a nation's sustainable growth, it said.

The net inflow of foreign investment may constrain the utilization of domestic capital, and if there are huge sums of "hot money," or short-term speculative capital, in the capital inflows, a nation's financial stability may be threatened, it said.

The administration said the current account surplus would decline this year.

San said general commodities trade is likely to reverse to a deficit of no more than US$15 billion this year.

(China Daily May 23, 2003)