Trade surplus likely widened in April - survey

Updated: 2007-05-10 08:48

China's trade surplus probably widened in April, adding fuel to demands from some U.S. politicians and businesses for faster appreciation of the yuan before policy makers of the two nations meet this month.

The gap climbed to US$15 billion from US$10.4 billion in April last year and from US$6.9 billion in March, according to the median estimate of 18 economists surveyed by Bloomberg News.

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That would bring the surplus for the first four months to US$61.4 billion, up 82 percent from the same period last year. The official figures will be released as early as Thursday.

US Treasury Secretary Henry Paulson is fending off U.S. lawmakers' calls for China to be sanctioned for alleged copyright piracy and keeping its currency weak to help exporters. Paulson has called for "tangible results"at a meeting of the Strategic Economic Dialogue with Chinese Vice Premier Wu Yi in Washington May 22-24.

"The U.S. Congress seems more determined than ever to tighten the noose on China,"wrote Stephen Roach, chief economist at Morgan Stanley, in a May 4 note. "The issue is trade policy and the legislative response to America's outsized bilateral trade deficit with China."

Exports probably rose 22.5 percent in April from a year earlier and imports gained 18.5 percent, the Bloomberg News survey showed.

In the first quarter, shipments to the U.S. rose 20.4 percent to US$50.7 billion.

China's currency has risen 7.6 percent since July 2005 when the government ended a peg against the dollar and allowed the yuan to fluctuate by as much as 0.3 percent a day.

Job Losses

The gain failed to mollify some in U.S. businesses, who blame China for job losses in U.S. manufacturing.

"The necessary appreciation of China's currency hasn't occurred."said Michael Campbell, chairman of the National Association of Manufacturers' U.S.-China Business Relations Task Force on May 8. "Patience is growing thin not just on Capitol Hill but on the shop floors of American manufacturing plants."

The causes of the U.S. trade gap with China are more complex than the Chinese government's efforts to restrain the yuan's value, according to Paulson.

"I'm focused on increasing exports and reducing barriers and increasing competition in China and structural reform in China and seeing some signposts along the way,"Paulson said in a May 2 speech. "Then we will get to the deficit."

China may allow the yuan trading band to widen to allow faster currency appreciation, according to Jan Lambregts, head of research at Rabobank International in Hong Kong.

Currency Trading Band

"China will do enough not to make the situation more sour,"said Lambregts. "It will probably widen the yuan trading band. It doesn't cost much but is a good gesture of flexibility."

China last month eased import rules for 338 products including plastics, machinery and electronics. The government has also cut export rebates on steel and introduced licenses to sell the metal abroad.

China's reluctance to let the yuan rise faster is because a stronger currency would hurt company profits and jobs. The textile industry, which accounts for 72 percent of China's trade surplus last year, loses 8.2 billion yuan of profits for every percentage point in the currency appreciation, China National Textile and Apparel Council estimates.

Foreign Reserves

"From the employment point of view, China doesn't want to kill the exports,"said Chen Xingdong, an economist at BNP Paribas SA in Beijing. "But building up huge foreign reserves is not in China's own interest. It is quite a dilemma situation really."

China's foreign reserves grew US$1 million a minute in the first quarter, double the average pace of the past year, and reached US$1.2 trillion at the end of March.

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