In an effort to gain a better understanding of the state of China's economy,the sharp swings in the value of the renminbi and how this might affect foreign exchange policy,China Forex spoke to Mu Zhiqian,a consultant to SAFE's Balance of Payments Department. The following is an interview with Mr. Mu conducted by Debra Lodge,managing director and head of renminbi business development,global markets,at HSBC.

Q: The Chinese economy has become a focus of the world's attention as a result of slowing economic growth,sharp fluctuations on the stock market and the weaker exchange rate for the renminbi. Can you explain what kind of changes took place on the balance of payments?

A: China's balance of payments is witnessing a "structural" adjustment process,which means its former situation of "twin surpluses" has now become one of "one surplus and one deficit." China maintains a steady surplus on the current account,but its capital account has swung from surplus to deficit.

Q: China had massive net capital inflows for a very long time. Does this mean that investment capital is being withdrawn as a result of poor economic circumstances?