China will probably post a $15.5 billion (Rs68,200 crore) trade surplus in January, pumping more cash into the economy and adding pressure on the government to allow the yuan to rise.
The gap narrowed from $21 billion (Rs92,400 crore) in the previous month, according to the median estimate of 20 economists surveyed by Bloomberg. Exports probably rose 25% in January from a year earlier and imports gained 16.4%. The trade figures are set to be released any time now.
China’s surfeit of exports over imports has flooded the economy with cash, hindering efforts by Premier Wen Jiabao to cool investment. The European Central Bank last month said the Chinese government should allow the yuan to appreciate to reduce lopsided trade flows and US treasury secretary Henry Paulson said getting China to allow a freely-traded currency is his “major” goal in the remaining two years in the job.
“China’s trade surplus will almost certainly top $200 billion this year, after jumping to $177.5 billion in 2006,” said Julian Jessop, chief international economist at Capital Economics Ltd in London.
The yuan has climbed 4.3% against the dollar since China scrapped a decade-long peg in July 2005, revalued it by 2.1% and allowed it to trade against a basket of currencies. China’s trade surplus was $144 billion with the US and $92 billion with the European Union last year.
China’s commerce ministry estimates that every 10 percentage-point gain in its currency will slow export growth by 3-4 percentage points and increase import expansion by the same amount.
Last week the US lodged the largest-ever trade complaint against China at the World Trade Organization, alleging that it subsidizes steel, information technology and other industries. “This complaint does send a message to China that the Bush administration is being tough on China to do something about the trade surplus,” said Wang Qing, an economist at Bank of America Corp. in Hong Kong. Wang said the Chinese authorities may allow the currency to appreciate faster to influence negotiations at WTO, which could take many years.
China prints yuan to convert the foreign currency derived from exports of clothes, electronics and steel. That adds to the money supply, boosting the risk of bad loans, rising inflation and investment in unnecessary factories. Inflation accelerated to 2.8% in December 2006, the most in almost two years.
Wen said the government this year needs to strengthen monetary control in order to ensure “stable and fast” economic growth. Cheng Siwei, vice-chairman of the Nation’s People Congress, wrote in a commentary on Tuesday that China must pay attention to stock market “bubbles”.
Moves to mop up the liquidity generated by the combination of China’s trade surplus and managed exchange rate are likely, said Shane Oliver, chief economist, AMP Capital Investors Ltd, in Sydney.
“The government is certainly concerned that the consequence will be higher inflation.”