China's trade surplus swelled by a less-than-expected 30.4 per cent year on year in August, but economists say pressure for yuan appreciation will continue to dog the world's biggest exporter.
The surplus for last month totalled US$20.03 billion, which was lower than economists' consensus forecasts of US$26 billion, and sharply down on the US$28.7 billion surplus posted one month earlier.
The month-on-month reduction reflected strong growth in imports in August, which jumped 35.2 per cent to US$119.27 billion while exports were up 34.4 per cent to US$139.3 billion, according to China Customs data.
The strength in imports largely reflected higher commodity prices, but surprised economists who had expected growth to fizzle out after efforts by Beijing to cut energy consumption and cool the property market. They said Beijing faced fresh pressure to lift the yuan's value.
'As political frictions ramp up ahead of the US mid-term election, expect every nuanced movement [in the US-China trade relationship] to be used by Beijing and Washington to further their stance on yuan,' HSBC chief economist Qu Hongbin said.
Next week, US Treasury Secretary Timothy Geithner is expected to face a grilling from the US Ways and Means Committee in the House of Representatives over the yuan.
US lawmakers are pressing the Obama administration to pressure Beijing to let the yuan appreciate more quickly.
The People's Bank of China (PBOC) set the mid-point, or its reference rate from where the yuan can rise or fall 0.5 per cent against the US dollar daily, at 6.7625 yesterday, up from Thursday's 6.7817 and its highest level since the yuan's landmark revaluation against the greenback in July 2005.
On Wednesday, Minister of Commerce Chen Deming said exporters should prepare for a stronger yuan by locking up the exchange rate on forward contracts and considering the impact of yuan appreciation on export orders to minimise any impact.
Many economists expect the yuan to gain 3 per cent to 6 per cent this year. But exporters said a higher yuan will eat directly into their already shrinking bottom lines, which have been burdened by an average rise of about 20 per cent in the minimum wage across the mainland and by higher raw material prices this year.
Mizuho Securities Asia economist Shen Jianguang said anecdotal evidence showed that Beijing was liberalising the yuan and would allow the currency to appreciate by about 3 per cent to 6.6 per cent this year.
The PBOC has slightly relaxed capital controls, allowing exporters to keep offshore proceeds overseas, encouraging issuance of offshore yuan bonds and allowing Hong Kong banks to invest in the mainland's bond market.
In the first eight months of this year, exports leapt 35.5 per cent to US$989.74 billion and imports were 45.5 per cent higher to US$885.84 billion. This left the surplus 14.6 per cent lower at US$103.9 billion.
The narrowing gap
The Ministry of Commerce says the trade surplus this year may reach: US$150b
This estimate is lower than the surplus last year, which totalled: US$196b
SOURCE: CHINA CUSTOMS