Slowing exports, rising imports counter yuan revaluation calls

DAVOS, Switzerland - China has no need to revalue the yuan for trade reasons, as export growth will slow to a 10 percent this year and its surplus is set to contract by 2015, its trade chief said.

Imports from the world's second largest economy will probably grow faster than exports this year, Commerce Minister Chen Deming said at the Davos forum.

Chen dismissed calls for China to strengthen the yuan to tackle the trade surplus, and called instead on countries with reserve currencies - a reference to the United States - to prevent their currencies from weakening. "It is not a sound argument to ask China to appreciate the yuan for trade reasons," Chen told Reuters on Friday in an interview during the World Economic Forum in Davos.

In 2010, China posted growth of 31.3 percent in exports, with its factories churning out everything from shoes to steel. Its imports, meanwhile, expanded by a faster 38.7 percent year-on-year in 2010 as the nation seeks to balance its foreign trade.

China joined the World Trade Organization 10 years ago - a symbol of its opening to the world - and last year overtook Germany as the world's biggest exporter.

China's exports will grow more slowly this year after 2010's stellar performance because of fragile conditions in its key markets, Chen said.

"There are lots of uncertainties in the global economy now, such as toxic assets in the United States, Europe's sovereign debt issue, as well as inflation and rising labor costs in emerging economies," said Chen.

It is therefore paramount for China to maintain a stable yuan exchange rate to benefit the global economy, he said.

China's trade surplus is virtually all with one country - a reference to the United States - and if it was excluded, trade will be more or less balanced, Chen said.

"So the trade surplus issue is not because of the level of exchange rates," said the veteran administrator, who draws inspiration from classical economists Adam Smith and David Ricardo, and has been commerce minister since 2007.

Chen said he saw little prospect of a currency or trade war, but it was necessary to remain alert over exchange rate tensions.

The yuan has been firming gradually, and it is likely to hit 6.3 per dollar by the end of 2011, a Reuters poll showed, from about 6.586 now.

Chen said a stronger yuan could help counter inflation, but could also bring other problems in its wake.

China imports food and raw materials whose prices are rising, but Chen played down the role of imports in inflation.

Asked about criticism by foreign businesses of difficult trading conditions in China, Chen said there was no systematic industrial espionage in the country and the authorities were tightening the protection of intellectual property rights.

Foreign companies were flocking to China in a sign of the positive business climate, with foreign direct investment inflows rising 17 percent last year to top $100 billion.

"Enterprises are smart. They wouldn't continue to invest for no reason," Chen said.

Reuters

(China Daily 01/31/2011 page14)