China posts record trade surplus

Updated: 2007-02-12 14:05

China posted a trade surplus of $15.88 billion in January, modestly beating expectations and taking the rolling 12-month sum to a record.

Trade has been a driver of China's headlong growth, but the swelling surplus is causing political and economic problems.

Washington has complained to the World Trade Organization about what it sees as unfair tax breaks for exporters, while China's central bank is having difficulty mopping up the resulting torrent of inflowing cash.

"There's an obvious drop in the surplus from December last year. The average monthly surplus was about $20 billion in 2006," said Li Huiyong, an analyst at Shenyin & Wanguo Securities in Shanghai.

"But when looking at the figure from January last year, which was about $9 billion, the surplus is increasing sharply. So the momentum of an increasing trade surplus and the resulting pressure on monetary policy still persists."

"Export growth has been stronger than we thought. A couple of things are supporting that -- one is there is a significant structural change in China's export sector, so the exporters' ability to handle renminbi appreciation and cost increases is stronger than expected," said Jun Ma, an economist with Deutsche Bank in Hong Kong.

"The other thing is, the U.S. economy is not as bad as a lot of people thought.

"Part of it does reflect the fact that this year, the Chinese New Year is in February."

"The trade surplus for the first month is usually not that spectacular, but $15.88 billion is still not a small number," said Kent Yau, an economist with Core Pacific-Yamaichi in Hong Kong.

"Imports are fast, but on the back of exports: it is basically driven by also export demand itself. The good thing is that the gap between the two growth rates is narrowing."

"That will contain the trade figure. But again, if the export competitiveness of China continues, then exports are still going to grow, maybe not every month at 33 [percent], but maybe something in the 20s. It's going to blow up the trade surplus any way.

"For the full year, I have forecast 22.3 [percent for exports]. It's not as great as the first month. The first and second months usually depend on the Lunar New Year.

"This is partially seasonal. This year, maybe some of the factories worry whether their workers from outside provinces won't return to their positions after the Lunar New Year, so maybe they have been trying to squeeze more production out of them. That could be one seasonal, anecdotal factor."

The yuan stood at 7.7564 per dollar at 0325 GMT compared with 7.7562 before the data came out.


China has allowed the yuan to appreciate by around 4.6 percent since it revalued the currency by 2.1 percent in July 2005. Although the pace of appreciation has picked up in recent weeks, critics say the yuan remains vastly undervalued, giving Chinese exports an unfair advantage in global markets.

The G7 on Saturday called explicitly for the first time for a rise in the yuan's effective exchange rate.

Conscious of the threat of protectionism, especially in the United States, China is tweaking taxes to try to redirect growth away from exports and related investment and towards consumption.

But government economists say China's trade surplus is likely to persist for at least another decade as global manufacturing continues to shift to take advantage of the country's low costs.

To absorb liquidity generated by the trade surplus, China has increased interest rates twice and reserve requirements four times since April.

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