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China: Trade Surplus Shows No Signs of Slowing Down Despite Policy Moves(2007-6-6)

Jun 6, 2007

China's trade surplus will likely continue to grow this year despite government austerity policies including cutting rebates and imposing export taxes, analysts said.

A widening trade gap may further boost the yuan's appreciation. Plus, more tax-related moves this year are likely in an effort to alleviate trade tensions with Europe and the United States, they said.

The nation's top planning body has forecast the trade surplus may settle between US$250 billion and US$300 billion this year as overseas sales continue to surge.

The gap will balloon from last year's US$177.5 billion surplus and means the government's plan to balance the trade gap by 2010 will be almost impossible to achieve.

"China has turned into the manufacturing and processing center of East Asia and is the main supplier of raw materials and spare parts to Europe and the US",as the National Development and Reform Commission in its quarterly trade report says.

The US trade deficit with China jumped to a record US$232.5 billion last year, 27.8 percent of America's total trade deficit.

"Robust global demand and inexpensive Chinese products hinder the government from fulfilling its plan to address the trade imbalance by 2010", said Li Mingliang, an analyst at Haitong Securities Co.

China aims to achieve a balance between its imports and exports by 2010 as it ramps up efforts to boost domestic demand and rein in overseas sales of energy-intensive products, according to the Ministry of Commerce.

Total foreign trade is expected to reach US$2.3 trillion by that time with annual growth of 10 percent, cooling off from last year's 23.8 percent expansion.

Yet far from showing signs of a slow down, this year's first-quarter trade surplus almost doubled from a year earlier to US$46.4 billion, sending economic growth to an higher-than-expected 11.1 percent during the period. The country's foreign-exchange reserves in the first three months reached US$1.2 trillion, the world's largest. For February alone, surplus settled at US$23.76 billion, just shy of the record US$23.8 billion in October, 2006.

February's burst is believed to be the result of exporters bringing forward March orders to shun risks of further reductions in rebates as the government works to optimize the structure of foreign trade.

The government has cut export rebates in major industries such as steel while urging firms to import more imports of technologically advanced equipment and pledged to cut red tape for such imports.

The Ministry of Finance has announced an export tax on a list of commodity products including steel, non-ferrous metals and several other raw materials in a move to cut overseas sales of products that use high amounts of energy and produce too much pollution.

Starting this month, the ministry placed an export tax between five and 10 percent on steel while increasing the export tax on rare earth metals, refined lead, ferroalloy products, unwrought zinc and nickel ore to between 10 and 15 percent.

The move came after the cancellation of export tax rebates for more than 80 steel products in April.

"Compared with measures aimed at suppressing export growth, policy changes that boost import demand (without generating inflation) will likely bear more fruit in narrowing China's ever-growing trade surplus," said Liang Hong, an economist at Goldman Sachs.

"We believe real exchange rate appreciation and tax cuts are optimal policy tools to achieve this goal", said Liang Hong.

The yuan has broke several record highs in the past month amid optimistic speculation over faster gains after the central bank widened the trading band of the currency. The band widening is believed to be an olive branch China extended to the US ahead of Strategic Economic Dialogue meetings between the two nations in Washington last month.

China last month allowed the daily trading fluctuation of the yuan to widen from 0.3% to 0.5%, along with another interest rate hike and an increase in bank reserve requirements. The central bank makes the central parity rate based on average weighted quotes from more than 10 commercial banks. A wider trading band boosts the flexibility of the yuan, said the Central Bank of China [ShanghaiDaily News].Simple though very important thing to consider is that the best replica watches package is not only aimed at preserving, but to get the attention of the target market. They come in vintage designs and their bold colors and exclusive patterns make replica handbags a popular choice among the young and fashionable.

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