China's competitive labour costs will ensure a sustained trade surplus and growing foreign exchange reserves for the next two decades, and a further appreciation of the yuan cannot resolve these issues, a National Bureau of Statistics official said yesterday. 'The trade problems cannot be solved simply by letting the exchange rate rise or fall and this has been proven by the trade relations between the US and Japan,' bureau spokesman Zheng Jingping said, pointing out that Japan continued to enjoy a trade surplus with the United States despite the sharp appreciation of the yen over the past three decades. He noted that Japan's trade surplus rose from US$10 billion in the 1970s to more than US$80 billion now even though the yen had risen from 380 to 110 to the US dollar. Mr Zheng made the forecast hours before President Hu Jintao met his US counterpart, George W. Bush, with trade and currency issues high on the agenda. After announcing the mainland economy grew 10.2 per cent for the first quarter - a figure much higher than market expectations - Mr Zheng tried to put on a positive spin by describing the accelerated growth rate as 'still normal'. But many economists have expressed fears of economic overheating and called for monetary tightening. The unexpectedly high figure was revealed on Sunday by Mr Hu, who warned against excessively rapid economic growth. Mr Zheng said China's external trade was dominated by the processing trade and many multinationals had moved their production bases to China to capitalise on low labour costs. This was the reason behind the increasing trade surplus and foreign reserves. Exports by multinationals accounted for 58.5 per cent of the mainland's total and the processing trade was 50 per cent of the mainland's total foreign trade. While China posted a US$102 billion trade surplus last year, its processing trade recorded a surplus of US$142.5 billion for the period. Foreign reserves reached US$875.1 billion at the end of March, making China the world's biggest holder of hard currencies. 'The exchange rate movement may have a little impact in the short term, but the key is still about production factors and cost.'