China trade surplus adds to pressure over yuan ahead of G20
Beijing (AFP) Nov 10, 2010
China's trade surplus grew in October as both exports and imports rose on-year, the government said Wednesday, adding to pressure on Beijing ahead of the G20 summit to let its currency appreciate.
The trade surplus expanded to 27.15 billion dollars in October, customs authorities said, before a Group of 20 summit in Seoul that is expected to focus on rebalancing the skewed global economy.
China's exports increased 22.9 percent in October from a year earlier, totalling 135.98 billion dollars, while imports rose 25.3 percent to 108.83 billion dollars, according to the data.
The figures -- along with US data expected to show a trade deficit of about 45 billion dollars later Wednesday -- were likely to fuel debate over trade imbalances, said Brian Jackson, a senior strategist at Royal Bank of Canada.
"The disparity in global trade balances is the key point that will likely attract attention as senior officials fly in to Seoul for the G20 meeting," Jackson told AFP.
"This stark contrast will likely add to the international pressure for China to move faster on the currency to provide more support to the global economy."
Critics claim the yuan is undervalued by as much as 40 percent, giving Chinese exporters an unfair trade advantage by making their goods artificially cheap.
China set the yuan's central parity rate -- the middle of the currency's allowed trading band -- at 6.6450 to the dollar on Wednesday, the strongest rate since currency reforms began in 2005.
"Imports were lower than market expectations... which showed that domestic demand may not be as strong as imagined," Jason Xu, a Beijing-based economist with China International Capital Corporation, told AFP.
Beijing might respond by allowing the yuan to strengthen at a slightly faster pace against the dollar in the short term, Xu said.
China's top central banker Zhou Xiaochuan has said he rejects any form of "shock therapy" to revaluate the yuan, saying the yuan would move gradually towards an "equilibrium" level.
If the trade surplus stays at current levels, pressure to strengthen the yuan will only increase, said Wang Hui, an analyst at Haitong Securities in Shanghai.
"If the trend continues, this year's total trade surplus will exceed the Ministry of Commerce's preliminary (2010) target of 100 billion dollars, leading to new pressures from other countries," Wang said.
However, the year-on-year export growth figures can be misleading because of their low levels a year ago, warned Kevin Lai, an economist with Daiwa Capital Markets in Hong Kong, adding that exports have been flat since August.
"It looks to me that it was flat again, telling us the rush orders ahead of Christmas have not materialised. So it's not entirely good news," Lai told AFP.
The figures were released as deputy finance ministers preparing for the G20 summit held heated debates in Seoul over currencies and economic imbalances, a South Korean official said.
"Voices were raised," Kim Yoon-Kyung, spokesman for South Korea's Group of 20 presidential committee, told reporters after the talks Tuesday.
"They wouldn't compromise. They actually had to keep the door open because the debate was so heated and we were lacking oxygen."
He said they had agreed Tuesday to adhere to the spirit of last month's G20 finance ministers' meeting, which said countries would avoid "competitive devaluation" of currencies and limit "excessive imbalances".
Larry Summers, head of the White House's National Economic Council, has said he expect G20 leaders to make progress on resolving the world's huge trade imbalances when they meet in Seoul.
Summers said global rebalancing would also benefit China's export-dominated economy, giving it an "attractive" opportunity to rely more on domestic demand and to promote consumer spending.
Shanghai shares were down 0.97 percent in afternoon trading Wednesday, amid concerns that China will face increased pressure to revaluate the yuan.
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Washington (UPI) Nov 9, 2010
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