China expects to triple trade surplus
(Agencies)
Updated: 2005-10-08 08:51

China predicts that its trade surplus could triple this year to reach $100 billion, reports said on Friday, leading to new disputes with its trading partners and added pressure to let its currency appreciate.

The Commerce Ministry warned that the ballooning surplus, fed by a 30 percent jump in exports, could also cause financial risks, China Daily reported.

China's trade surplus from January to August reached $60 billion, compared with $32 billion for all of 2004. By the end of this year, the surplus is expected to surge to $90 billion to $100 billion, the ministry said. Total foreign trade could reach $1.4 trillion, it said.

The ministry was quoted as saying that while the huge trade surplus helped expand Chinese foreign-exchange reserves and fueled economic growth, it would also have negative effects. Those effects include "creating new trade frictions, adding pressure for yuan revaluation and financial risks."

Separately, the central bank governor, Zhou Xiaochuan, said China should re-examine its yuan exchange rate policy in light of the bulging surplus, according to an interview he gave to the Chinese financial magazine Caijing.

"Looking at whether the currency's exchange rate is reasonable and balanced has become an issue that needs to be researched, acknowledged and solved as soon as possible," Zhou told Cajing.

Zhou also said China must do more to increase domestic consumption as a way to shrink the trade gap.

"Weak domestic demand will further enlarge the trade surplus, and this is something that we don't want to see," he said.

Exports have increased despite China's decision on July 21 to make the yuan about 2 percent stronger against the dollar and to allow it to trade in a restricted float against a basket of currencies instead of being pegged directly to the dollar.

The U.S. Treasury secretary, John Snow, and Alan Greenspan, the chairman of the Federal Reserve, will be in Beijing this month for talks with economic officials. U.S. officials would like to see China speed efforts to allow the value of yuan to be set by market forces.

Adding his voice to the U.S. pressure, Japan's finance minister, Sadakazu Tanigaki, said on Friday that he was closely watching what China does with the yuan's new managed-float exchange rate system.

"China's economy is growing rapidly, and it has to think of various factors in managing its economy, and it may take some time for it to get used to the new foreign exchange management policy," he said in Tokyo.

Many U.S. manufacturers claim that China keeps the yuan artificially low, giving it an unfair trade advantage. On Wednesday, the U.S. government accepted an industry request to consider quotas on another 13 types of textile imports from China. The U.S. trade deficit with China, $162 billion last year, an all-time high with any country, has been a source of irritation between the two nations.

The ministry also said in a statement on its Web site Friday that China and the United States would resume textile talks in Beijing next week. The two countries failed last week to agree on limiting Chinese textile exports.

China's textile and clothing exports have surged with the lifting of global textile quotas on Jan. 1, and the United States and Europe have put limits on Chinese textile shipments to protect their own clothing manufacturers.

European companies are also complaining, and the European Union has agreed to impose five-year tariffs on Chinese imports of magnesia bricks used by steel makers, shielding European producers. The European refractory industry "has suffered material injury" as a result of higher imports from China, the European Union said in a decision seen on Friday by Bloomberg News.

The bloc also said the duties would help ensure that the European steel industry would not become too reliant on China by ensuring viable production of magnesia bricks in Europe. The ruling will be published in the Official Journal in the coming days.

These antidumping duties of up to 39.9 percent come after China more than doubled its share of the European market for the product, which is used as a lining of the vessels in which steel is melted.