Big trade gap puts pressure on yuan
Mainland June exports miss market growth target as imports rebound, leaving a surplus large enough to push for a stronger currency
The mainland's trade performance improved last month but missed market expectations, with the trade surplus running at a level where it could add pressure on the yuan to appreciate, although Beijing has insisted it would step up exchange rate reform only when market conditions are favourable.
The customs bureau said yesterday exports rose 7.2 per cent from a year earlier, its best showing in five months, as the sector stabilised near the 7 per cent gain seen in May. But the figure trailed market expectations for a 10.4 per cent rise, raising questions if Beijing can meet its economic growth target of 7.5 per cent for this year.
Imports grew 5.5 per cent, rebounding from a year-on-year fall of 1.6 per cent in May, indicating a pickup in economic momentum.
The trade surplus narrowed to US$31.6 billion from US$35.9 billion.
"The global economic situation has been improving", which meant foreign trade would not see great volatility in the second half of this year, said State Information Centre senior economist Zhu Baoliang.
Zhu said growth might slow to 7.3 per cent this year from 7.7 per cent last year, with cooling property investment seen as the main drag on the economy.
An investigation on fraudulent commodity financing, where imports of metals were used as collateral to obtain loans from several institutions, was blamed for causing the unexpected fall in imports in May.
Analysts say weak property investment may continue to weigh on the economy although export growth may stay healthy because of expansion in the United States and recovery in Europe.
The sizeable trade surplus could also nudge the yuan higher. "A large trade surplus amid the Sino-US strategic and economic dialogue has again put the [yuan] in the spotlight, facilitating renewed appreciation," said ANZ Bank's chief Greater China economist Liu Li-Gang.
The bank forecast the yuan would strengthen to 6.15 to the US dollar by the end of this year from 6.20 now. But it might weaken again if the central bank encouraged more capital outflows in the next few months, it said.
The trade data was released when the US-China strategic and economic talks entered the second and final day of meetings in Beijing. Despite US calls that Beijing should further ease controls on the exchange rate, People's Bank of China governor Zhou Xiaochuan said yesterday the central bank's intervention would only be reduced when global markets were stable.
"There's not much room for China to deepen exchange rate reform in the near term as the yuan's floating band has already been widened while the trade surplus has been narrowing," Zhu said.
The yuan fell more than 2 per cent against the dollar in the first half of this year, after rising 36 per cent since July 2005 when China launched exchange rate reform.
China's current account surplus shrank to 2 per cent of GDP last year from more than 10 per cent in 2007. Beijing has said that was a sign that the yuan was approaching a level of equilibrium.