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Cary Huang

Commerce chief says curbing the spiralling trade surplus will be top priority

China's foreign exchange reserves hit a record US$1.066 trillion at the end of last year on the back of a surging trade surplus and rising foreign direct investment, the central bank announced yesterday.

The announcement by the People's Bank of China coincided with a pledge from Commerce Minister Bo Xilai  that Beijing would make cutting its politically sensitive trade surplus its 'top priority'.

The yuan ended at a record high of 7.7918 to the US dollar in the over-the-counter market yesterday, compared to 7.7984 on Friday. In the exchange-traded market, the yuan finished at 7.7925 to the US dollar, compared to 7.7975 on Friday.

The mainland's foreign exchange reserves grew by 30.22 per cent last year.

Unconfirmed reports suggested China's foreign reserves had topped US$1 trillion by the end of October after it overtook Japan to become the world's largest holder early last year. However, yesterday's announcement was the first time the People's Bank of China had officially confirmed they exceeded US$1 trillion.

The stockpiles of reserves have caused excessive liquidity in the country's banking system and have become evidence of an undervalued currency criticised by western trading partners.

The nation's rapidly growing trade surplus was detrimental to both domestic economic development and foreign trade relations, Mr Bo was quoted by Xinhua as saying yesterday.

The mainland's trade surplus jumped 74 per cent last year to a record US$177.47 billion on the back of a 27.2 per cent surge in exports, customs authorities said last week.

Western trading partners cite the  trade surplus as evidence Beijing has been deliberately keeping the value of the yuan artificially low.

Economists said the latest figures would increase political pressure on Beijing to let the yuan appreciate more rapidly to head off the risk of protectionism in industrialised markets.

People's Bank of China governor Zhou Xiaochuan  told a meeting in Basel, Switzerland, last week China could further increase the flexibility of its exchange rate if trade surpluses continued to grow.

'Reducing the trade surplus is the 'top priority' of the year's foreign trade development,' Mr Bo told a national conference which will set the country's commerce and trade policy for the year.

'Enterprises and trade departments  should be fully aware of the significance of surplus reduction. This is an opportunity for China to upgrade its lower value-added processing trade, optimise export structure and urge companies to shoulder their social responsibilities,' he said.

Mei Xinyu , a researcher at the ministry's Academy of International Trade and Economic Co-operation, said the trade surplus could not be reduced in the short run. 'Growth of exports will continue to outpace that of imports,' Dr Mei said, pointing out that as long as global manufacturers continued to move  to China, the country's exports would continue to surge.

Acknowledging China's economic growth was mainly powered by exports, Mr Bo said the government would keep a close eye on the negative impact of surplus reduction on the national economy, especially in terms of job losses.

He said the   imbalances in international payments with the US and the European Union had  triggered more trade friction.

The Ministry of Commerce said 25 countries and regions launched 86 anti-dumping and trade protection investigations against China last year, up 37 per cent, affecting a combined trade volume of US$2.05 billion.

Mr Bo said foreign direct investment on the mainland grew 5 per cent to hit a record US$63 billion last year,  while overseas investment by Chinese companies also hit a record high of US$16.1 billion, up 32 per cent.



Foreign reserves at US$1.066 trillion