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China’s trade surplus soars 73% to $22.45 bn

China’s trade surplus soars 73% to $22.45 bn
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First Published: Tue, Jun 12 2007. 01 07 AM IST
Updated: Tue, Jun 12 2007. 01 07 AM IST
China’s trade surplus rose a bigger-than-estimated 73% in May from a year earlier, increasing pressure on the government to allow faster currency gains.
The gap widened to $22.45 billion (Rs92,000 crore), the customs bureau said on its website. The median estimate of 18 economists, surveyed by Bloomberg, was for a $19.5 billion surplus. For the first five months, the surplus grew 84% to $85.72 billion.
Surging exports spurred economic growth of 11.1% in the first quarter and drove foreign-exchange reserves to a record $1.2 trillion. A stronger yuan would ease tensions with trading partners and help prevent the world’s fastest-growing major economy from overheating.
“Today’s number is very large and will add political pressure for currency gains,” said Sebastien Barbe, senior economist at Calyon in Hong Kong. “Also, the Chinese government needs to look for new ways to cool the economy, investment and the stock market—and the currency is becoming a very big part of that.”
Exports rose 28.7% from a year earlier. Imports increased by 19.1%. The April surplus was $16.9 billion.
The yuan’s rise has stalled since Chinese and US officials met for trade talks in Washington last month. The currency dropped 0.11% to 7.6632 against the dollar in Shanghai on Monday, bringing losses in the past three days to 0.36%.
The US Senate will introduce a bill this week to pressure China to strengthen its currency, Financial Times said on Monday, citing unidentified people close to the situation.
European Central Bank president Jean-Claude Trichet, said last week that China should make its currency more flexible, a view echoed on Monday by Japan’s finance minister, Koji Omi. French President Nicolas Sarkozy has criticized the Chinese government for the pace of yuan appreciation.
Some US lawmakers said last month that the yuan was undervalued by 40% to make China’s exports cheap and pledged trade sanctions as punishment.
“Americans are impatient to see real change,” US treasury secretary, Henry Paulson, said on 5 June. “A large section of the American public doesn’t believe that the benefits of trade are being shared equally between or within our two countries.”
The yuan has strengthened 8% since China scrapped a 10-year peg to the dollar and revalued the currency in July 2005. The 0.74% monthly gain in May was the biggest since the end of the fixed exchange rate.
China will move at its own pace on the currency, vice-premier, Wu Yi, said last month at the close of the talks with Paulson in Washington. The government widened the yuan’s trading band on 18 May to allow moves of as much as 0.5% each day against the US dollar, although fluctuations had never reached the previous 0.3% limit.
“There will be more friction,” said Enzio von Pfeil, chief executive at Commercial Economics Asia Ltd in Hong Kong. “The US will put out some barriers to imports but the Chinese will then just export their products elsewhere.”
Chinese steel makers such as Wuhan Iron & Steel Co. and Handan Iron & Steel Co. triggered a petition from US manufacturers last week seeking import duties on welded standard pipe because of alleged subsidies and dumping.
Besides trade tensions, China’s boom in overseas sales fuels asset bubbles at home by flooding the financial system with cash.
The government last month increased a share-trading tax to cool the stock market. It has also increased interest rates and ordered banks to set aside larger reserves to rein in lending and investment and sold bills to soak up cash.
The CSI 300 Index of shares has fallen 5.7% from a 29 May peak. The benchmark is still up 93% this year after more than doubling in 2006. It gained 2.5% on Monday.
Product warnings in the US have provided ammunition for China’s trade critics. Regulators this month told consumers not to use toothpaste made in China because it may contain a chemical used in antifreeze.
Frozen “monkfish” may be poisonous pufferfish, an off-road vehicle for children may cause injury or death, and pet-food additives contained an industrial chemical, according to government statements in May and June.
“Chinese manufacturers make shoddy toys that endanger innocent children, export tainted drugs, and sell poisonous foods and personal-care products in the United States and elsewhere,” Peter Morici, an economics professor at the University of Maryland, said in an email. “Surely, with its huge trade surplus, Beijing could import western methods of quality control.”
China says it will revamp the system for regulating food and drug safety. The government also describes some US claims about product dangers as unscientific, exaggerated and wrong.
The May trade gap was the country’s fourth highest monthly surplus on record.
Christina Soon in Beijing and Catherine Yang in Hong Kong contributed to this story.
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First Published: Tue, Jun 12 2007. 01 07 AM IST
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