China trade surplus nears record
August 10 07:40 BST
© Reuters Limited
China on Friday reported its second biggest monthly trade surplus on record, handing more ammunition to critics who say Beijing gains an unfair trade advantage by keeping the yuan undervalued.
The surplus in July was $24.36bn, down from June’s record high of $26.91bn, but above forecasts of $22.5bn and dwarfing the July 2006 figure of $14.6bn.
Economists had expected export growth to taper off after factories rushed to ship goods in June before rebates of value added tax were cut or scrapped on July 1 on 2,800 export lines.
But annual export growth in fact accelerated from 27.1 per cent in June to 34.2 per cent despite a string of recalls of Chinese products in a number of countries, notably the United States, due to safety concerns involving everything from toys to toothpaste.
“It shows Chinese exporters are still scrambling to export despite government tightening,” said Li Yushi, vice-director of a Ministry of Commerce think tank.
“Many exporters are privately run, and they have no intention to slow down their businesses,” Mr Li said.
Legislation is wending its way through the US Congress that would impose duties on goods imported from countries deemed to have fundamentally misaligned exchange rates. China is the main target of the lawmakers.
But Mr Li said he doubted that trying to raise barriers to Chinese goods would make much of a difference.
“Demand for China-made products in overseas markets is still strong despite headline-grabbing anti-dumping cases and the like. I don’t think there will be any massive boycott of Chinese products,” he said.
Li Huiyong, chief economist at Shenyin & Wanguo Securities in Shanghai, noted that exports usually gain momentum in the second half of the year as factories gear up for Christmas deliveries.
The trade surplus in the first seven months rose 81 per cent from the same period of 2006 to $136.8bn, and Mr Li said it could well reach $300bn for the whole year.
The surplus in 2006 was a record $177.5bn.
“The surplus is still high and doesn’t seem to have been affected much by the yuan’s appreciation and cuts in export tax rebates,” he said.
The yuan has risen 7 per cent since it was revalued by 2.1 per cent against the dollar in July 2005 and untethered from a dollar peg to float within managed bands.
Annual import growth also outstripped expectations, accelerating from 14.2 per cent in June to 26.9 per cent in July.
Mr Li with the Commerce Ministry said the jump probably reflected robust domestic investment.
That would be a worry to policy makers, who are striving to prevent a resurgence of capital spending out of fear that the economy is already at risk of overheating.
Companies have strong incentives to invest. Global and domestic demand is strong, profits are rising fast and banks are awash in cheap money generated by the trade surplus.
The People’s Bank of China, the central bank, is concerned that inflation could accelerate under these conditions.
Economists expect figures on Monday to show that consumer prices rose 4.9 per cent in July from a year earlier, up from 4.4 per cent in the year to June.
There are rumours in financial markets that the figure could be as high as 5.6 per cent, driven by a surge in pork and egg prices.
Analysts who contend that price pressures are confined to food took comfort on Friday from an unexpected dip in wholesale inflation in July to 2.4 per cent from 2.5 per cent in June.
They said the benign report lends support to the argument that, although the economy has been growing at a double-digit pace for five years, competitive pressures and productivity gains are keeping a lid on broad inflationary pressures.
“It’s a figure that should give investors less reason to panic when we get a high-side CPI on Monday,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.