The Chinese balance of payments has indeed been experiencing not only a strong trade surplus, but also net private capital inflows, including inward foreign direct investment and – most recently in 2007 – portfolio inflows.
The ensuing “twin” current and capital account surpluses have produced a strong upward exchange rate pressure in the economy and, as a result, the People’s Bank of China (PBC) has continued to intervene massively in the foreign exchange market. At the end of July, foreign exchange reserves were equal to around $ trillion, or more than 45% of GDP.