Trade surplus surge adds to yuan pressure

PUBLISHED : Saturday, 11 August, 2007, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

The mainland's trade surplus surged last month to the second-highest level on record, fuelling pressure for a more rapid appreciation of the yuan and increasing tensions with importing countries.

The politically sensitive trade gap rose 67 per cent to a higher than expected US$24.35 billion.

Exports jumped 34.2 per cent year on year to US$107.74 billion, surpassing a 26.9 per cent growth in imports to US$83.38 billion.

The surplus, which beat economists' estimates of US$23 billion, brought the total to US$136.81 billion in the first seven months of the year.

Economists attributed the sharp growth in exports to spillover from June's trade shipments and the competitive prices of mainland goods.

The growth will reinforce calls from the United States for a faster rise in the yuan to counter a flood of what Washington called 'artificially cheap' exports.

'The market thought the growth in the surplus would moderate last month, but it came as a surprise,' JP Morgan economist Wang Qian said. 'It appears that the yuan can't escape the fate of a faster appreciation.'

Ms Wang expected the yuan would gain about 10 per cent to the US dollar by the end of this year. Yesterday, the currency stood at 7.578 yuan per US$1.

Beijing is reluctant to permit a stronger currency, fearing the implications for unemployment and the livelihoods of 900 million peasants, or 70 per cent of the country's population.

Last week, Vice-Premier Wu Yi deflected US Secretary of the Treasury Henry Paulson's calls to raise the value of the currency more rapidly and increase economic reform.

The disagreement, compounded with anticipation of further growth in exports for the rest of this year, could put already fragile economic ties between the two countries to the test.

'Tension is growing,' Merrill Lynch economist Ting Lu said. 'Some key export items such as steel will be the subject of dispute.'

The mainland sold 92.2 per cent more steel at 39.7 million tonnes to overseas markets in the first seven months of this year.

Some economists said the latest trade figures showed the limited impact of new rules scrapping or slashing tax rebates on 2,831 types of exports from July 1 and heightened the need for more draconian policies.

'This year's trade surplus will continue to grow substantially,' CICC chief economist Ha Jiming said, pointing to the strength in the global appetite for Chinese goods.

Mr Ha did not think more rules to restrict exports, effective from August 23, would put the brakes on export growth.

Instead, they would help 'high-polluting, labour-intensive and resources-oriented' exporters move up the value chain.