Trade surplus soars 56pc to US$23.9b
September surge pushes mainland forex reserves to record, adding pressure for increase in rates
The mainland's trade surplus, bank lending and foreign reserves all surged last month, boosting the ocean of cash sloshing around in the economy and intensifying pressure for a further interest rate rise.
The trade surplus climbed 56.33 per cent to US$23.91 billion in September, wider than the US$21 billion forecast in a Bloomberg survey of 20 economists and signalling recent safety recalls of mainland goods had not dampened demand.
The widening trade surplus boosted the country's foreign reserves - already the world's biggest - 45.11 per cent to a fresh record of US$1.43 trillion last month.
Separately, outstanding local-currency loans rose 17.1 per cent from September last year to 25.9 trillion yuan while M2, the broadest measure of money supply, surged.
Much of the export growth was driven by demand from Europe, where official opposition to Beijing's policy of limiting appreciation of the yuan is likely to deepen.
The mainland's major trading partners, most notably the United States and Europe, accuse Beijing of keeping the yuan at an artificially low level to give its manufacturers an unfair advantage.
Eurozone finance ministers this week agreed to send a delegation to the mainland to seek a stronger yuan.
Exports last month climbed 22.8 per cent year on year to US$112.48 billion, outpacing a 16.1 per cent rise in imports to US$88.56 billion, the customs bureau said yesterday.
That brought the total surplus for the first nine months of this year to US$185.65 billion, surpassing the US$177.5 billion for all of last year.
'The exchange rate policy is under international focus again,' said Huang Yiping, the managing director and head of Asian economic and market analysis at Citi. 'The tension with importing countries is more diversified.'
European Union members last month bought 32.22 per cent more goods from the mainland. That brought the total to US$175.51 billion in the first nine months of the year, a 30.8 per cent gain.
The EU's appetite for mainland goods last month exceeded that of the US which reported a 9.52 per cent rise in imports. For the nine months, goods from the mainland rose 15.8 per cent to US$169.99 billion.
'This provides yet another excuse for American protectionists against China,' China International Capital Corp chief economist Ha Jiming said.
The yuan exchange rate was a key factor behind a 6.22 per cent gain in toy exports to US$978.84 million last month, even amid a wave of safety recalls in the US.
This summer, mainland-made toys have come under greater scrutiny after a series of high-profile recalls by Mattel, the world's largest toymaker, because of concerns over small magnets that could be swallowed by children and the use of lead-based paint.
Mattel executive vice-president of worldwide operations Thomas Debrowski later issued an apology, saying: 'The vast majority of those products recalled were the result of a design flaw in Mattel.'
A bigger surplus is bad news for state leaders who are attempting to rein in runaway economic growth and raises the prospect of more interest rate rises by the end of this year.
'The problem with the economy is too much cash and the concern is about a brewing asset bubble,' JP Morgan economist Wang Qian said. 'There are definitely more monetary policies coming up.'
Ms Wang expected two more rounds of interest rate rises by March next year while the yuan would strengthen to seven yuan to the US dollar by December from 7.51 yuan yesterday.
Local-currency loans rose last month, with banks extending 283.5 billion yuan of new loans, pushing the total this year to 3.36 trillion yuan, more than the 3.18 trillion yuan increase in all of last year. Outstanding local-currency deposits rose 16.8 per cent from a year earlier to 38.3 trillion yuan, the central bank said.
M2 rose 18.45 per cent to US$39.31 trillion last month as the trade surplus continued to balloon.
Ms Wang expected excess liquidity would prompt the central bank to raise the required reserve ratio, the amount of money that commercial banks must hold in reserve, to 15 per cent by the end of next year from 12.5 per cent now.
Mr Huang said another interest rate rise of 27 basis points was on the cards after the mainland lifted borrowing costs last month for the fifth time this year.
Still, many economists do not believe further administrative measures aiming at curbing export growth are warranted given that tax rebate cuts and restrictions on low-end processed goods were gradually kicking in.
Mr Huang said Beijing was unlikely to introduce drastic measures given concerns about the impact on employment. 'All measures come back to the issue of job losses, which Beijing most worries about,' he said.
Paul Cavey, the head of China economic research at Macquarie Research, agreed. 'China wants the surplus to come down but is reluctant to raise the value of yuan,' he said.
Vice-Minister of Commerce Liao Xiaoqi yesterday called for the US to loosen restrictions on the export of high technology to the mainland amid Beijing's desire to restore the trade balance and encourage research and development.
Mr Ha said the growth in exports to the US could taper off in the coming months as the credit crunch arising from the subprime lending crisis took its toll on consumer demand.
Imports to the US are already slowing, shrinking 0.4 per cent in August, the first decline since April.