Rebound in mainland trade points to yuan rise

PUBLISHED : Thursday, 11 March, 2010, 12:00am
UPDATED : Thursday, 11 March, 2010, 12:00am

Mainland trade grew faster than expected last month, raising the prospect that Beijing would allow the yuan to appreciate against the US dollar.

Exports jumped 45.7 per cent to US$94.52 billion, ahead of analysts' consensus of 38 per cent growth and the 21 per cent growth in January. Imports swelled 44.7 per cent to US$86.91 billion, better than the 38 per cent rise predicted by analysts but down from the 85.5 per cent increase in January.

The big increases were off a low base. The first two months of last year was the height of the global financial crisis. Still, many economists said last month's trade data showed that the recovery in exports had solidified and the case for allowing the yuan to appreciate had grown stronger.

Comparisons were affected by the Lunar New Year holiday, which took place in February this year but in January last year.

'The latest trade figures are a little bit stronger than expected, which means a continuous exit on monetary policy,' UBS economist Wang Tao said. 'Yuan appreciation does not have to wait any longer.'

She expected the yuan could be strengthened as soon as next month, by 5 per cent to 6.40 to the dollar by the end of this year. The currency gained only 0.1 per cent in the past year, to 6.82 last year. The central government allowed it to climb 16 per cent in the three years to 2008. Its value is politically and economically sensitive. State leaders had promised to keep a stable regime as the recovery in external trade remained fragile.

Minister of Commerce Chen Deming said last week that Chinese exports would not recover to pre-crisis levels for another two or three years due to uncertainties in the world's economic recovery.

Last month's surplus was roughly halved to US$7.6 billion from US$14.2 billion in January. In the first two months of this year, the surplus drifted 50.4 per cent lower because of a 31.4 per cent gain in exports and a 63.6 per cent jump in imports.

Premier Wen Jiabao told the National People's Congress last week that the government would push domestic spending and improvements in the service sector to reduce reliance on exports and investments.

Nicholas Kwan Ka-ming, the head of regional research for Asia at Standard Chartered Bank (Hong Kong), said the recent sharp rebound in exports would taper off in the second quarter, partly because of a larger base of comparison in the same period last year.

'The economic recoveries in the United States, Europe and Japan are uncertain,' he said. 'The export growth may slip back to a single digit in the second half of this year.'

An HSBC research report said the strong trade data indicated that industrial production and inflation could grow faster than expected, which could play a role in overheating the economy.