Record imbalance gives critics in US Congress more ammunition to attack the yuan
China's politically sensitive trade surplus hit a new record last month, providing more ammunition to critics who say that despite recent gains in the yuan, the nation's exporters still had an unfair advantage.
The trade surplus widened 85.5 per cent from a year ago to US$26.9 billion, the General Administration of Customs said yesterday.
That pushed the surplus for the first half of the year to US$112.5 billion, breaking the US$100 billion barrier for the first time in a six-month period.
'This level of trade surplus is unprecedented for [the mainland] or any other major economy in the world,' said Hong Liang, chief China economist with Goldman Sachs.
The figure for last month broke the US$23.8 billion record set in October last year and also surpassed February's US$23.7 billion and May's US$22.4 billion.
Beijing has said repeatedly it wants to cut the surplus and move away from export-led economic growth. Since last year, it has boosted policy measures to curb exports and boost imports and consumption.
Economists said the surge in the surplus was due partly to exporters rushing shipments before cuts in tax rebates for their exports. From July 1, the government cut tax rebates on exports of 2,831 products.
Critics of China's trade policy in the United States Congress are pushing for legislation that would levy punitive tariffs on mainland imports if Beijing fails to let the yuan appreciate quickly. A weak yuan penalises producers in developed nations such as the US, as it gives the mainland a price advantage, they claim.
The yuan yesterday hit its peak since being revalued two years ago. It has risen 6.9 per cent on the dollar since it was revalued 2.1 per cent and its decade-old peg with the US dollar was scrapped in July 2005.
The trade surplus with the US made up about 66 per cent of the sensitive figure. In the first half, it reached US$73.9 billion, the customs department said. However, Washington might report a much higher figure due to differences in the way the statistics are compiled. The US reported a trade deficit of US$232.5 billion with China last year - one of the biggest with a single country.
Ms Liang said the surplus was equal to about 8 per cent of gross domestic product for the period. Exports, capital investment and consumption were the three engines behind the country's economic boom.
'This again highlights the ineffectiveness of the policy tinkering that has so far failed to tackle the root cause of China's bloated trade surplus: the significantly undervalued currency,' she said.
The surge came despite a series of safety-related recalls of Chinese-made goods in the US. In recent months, several contaminated and defective products, from tyres and toys to seafood and toothpaste, have been found among Chinese exports.
However, demand in the US, Europe and elsewhere for low-cost Chinese goods has stayed strong.
Ms Liang ruled out any significant slowing in export momentum in the near future.
Vice-Minister of Commerce Wei Jianguo recently said the trade surplus probably would narrow in the second half after the changes to export incentives.
But the research arm of the National Development and Reform Commission, the top planning agency, forecast a new record of between US$250 billion and US$300 billion in the trade surplus for the whole year.