DOMESTIC exports from China are on the comeback trail, spurred by the unification of the yuan and tight credit policies this year, economists say. After posting negative growth of 1.5 per cent to US$66.5 billion in 1993, domestic exports rebounded in the first nine months of the year to $57.3 billion - a jump of 27 per cent. At the same time, domestic imports have sunk to a growth rate of 3.8 per cent, or $42.8 billion, compared with last year's 14.6 per cent growth to $62.1 billion. 'Domestic trade has recovered and China will probably be able to maintain strong growth into next year,' said Benny Chiu, research manager for Hongkong Bank China Services. This surge in exports has put China within reach of achieving a trade balance by the end of this year, after the nation experienced a $12.18 billion deficit in 1993. 'Even if there is a trade deficit, it's going to be a small amount, around $1 billion,' said Qu Hongbing, China economist at Smith New Court Far East. China's trade surplus widened $1 billion in October to $2.41 billion. 'I'm quite confident in China's exports. The competitiveness of China's industries has increased substantially, not only in pricing but in the quality of the manufactured goods,' he said. Strong domestic exports also mean China has a good chance of meeting its goal of exporting and importing $200 billion worth of goods this year. By the end of October, total exports had risen 29.7 per cent to $89.86 billion and imports had climbed 14.5 per cent to $87.45 billion. 'Given the strength of exports this year, the trend can't go on forever. The base line has gone up,' said Ma Guonan, senior economist at Peregrine Brokerage. But since March, growth in exports has outpaced imports. One of the main reasons for this has been the devaluation of the yuan in January with the unification of the swap market rate and the bank rate. That meant that the official value of the yuan fell from about 5.7 yuan to about 8.7 yuan against the United States dollar, though it has since appreciated to about 8.5 yuan. Overnight, domestic exports earned about 33 per cent more yuan than before, offering enterprises a strong incentive to increase exports. Meanwhile, the combined effects of high inflation and austerity measures have curbed demand within China, forcing enterprises to export more to maintain earnings, Mr Ma said. That has meant an improvement in China's foreign reserves, which rose 106 per cent since the beginning of the year to US$43.7 billion by the end of October. According to Mr Qu, this is good news for the future of the yuan because strong export growth and rising reserves may convince the central government to move up the date for the full convertibility of the yuan. The target date for full convertibility has been set for 2000. Mr Qu also attributed the growth in exports to a dramatic increase in the amount of utilised foreign investment this year, which has meant the establishment of many export-oriented enterprises. Despite a drop in the growth of contracted investment to $62.58 billion, actual investment increased 44 per cent to $25.23 billion. In addition, the central government has granted more domestic enterprises the right to export directly, with another 100 or so expected to be given the privilege in 1995, Mr Qu said. But not all the impetus for strong export growth has come from within China. Mr Ma said a major factor was the economic recovery of Organisation of Economic Co-operation and Development (OECD) trading partners such as the US, Britain and Japan. This has created stronger demand abroad for Chinese products. Despite these successes, strong domestic imports create another set of worries. 'The problem now is that the government faces conflicting goals in macro-economic control,' Mr Chiu said. 'On the one hand, exports bring in foreign reserves and increase money supply, but China also wants to control the money supply and prevent inflation from rising.' Consumer prices climbed to over 27 per cent in October, their highest level since 1988. To limit the growth of the money supply, China can tighten credit further, relax the austerity programme to encourage more imports or allow the currency to appreciate further against the US dollar, Mr Chiu said. None of the choices are easy ones. The question now becomes which path China will take.