China Trade Surplus Climbs to Record $27.05 Billion

Business Materials 12 November 2007 07:08 (UTC +04:00)

China's October trade surplus rose 13.5 percent from a year earlier to a record $27.05 billion, adding fuel to U.S. complaints the yuan is undervalued.

The customs bureau gave the figure on its Web site today. That compared with the $30.8 billion median estimate of 14 economists surveyed by Bloomberg News.

U.S. Treasury Secretary Henry Paulson, due in Beijing next month for economic talks, said last week that China is ``out of step'' with the rest of the world's calls to let the yuan appreciate. The trade gap also pumps cash into China's financial system, hindering government efforts to curb inflation that's close to a decade high and stock and property bubbles.

``Paulson will continue to face pressure from the U.S. Congress to persuade China to allow a freer exchange rate,'' said Shuji Tonouchi, senior economist at Mitsubishi UFJ Securities Co. in Tokyo. ``A stronger yuan will help China curb inflation.''

Exports rose 22.3 percent in October from a year earlier to $107.7 billion and imports climbed 25.5 percent to $80.7 billion.

The 13.5 percent jump in October's surplus compares with a 56 percent gain in the previous month.

``As macro control measures in foreign trade take further effect, export growth slowed in October,'' the government said. The slowing was a decline of less than one percentage point -- from 22.8 percent in the previous month.

The yuan fell 0.02 percent to 7.4121 against the dollar as of 10:31 a.m. in Shanghai.

The smaller percentage increase in the surplus may suggest exporters are ``feeling the pinch'' from currency appreciation and government curbs such as cuts in export-tax rebates, according to Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong.

Faster yuan appreciation could reduce the flow of money into China's financial system by making exports more expensive. The currency has gained almost 12 percent versus the dollar since a fixed exchange rate ended in July 2005.

``China is increasingly seen as out of step with international norms and expectations, as evidenced by the growing number of national leaders and multilateral institutions calling for currency appreciation,'' Paulson said in New York last week.

October's surplus brought the 10-month total to $212.4 billion, up 59 percent from a year earlier. Export volumes are biggest in the final quarter because of Christmas shipments.

China is trying to tame consumer prices that rose 6.2 percent in September from a year earlier and cool asset bubbles. The CSI 300 Index of stocks is up more than 140 percent this year even after declines since mid-October.

Producer-price inflation accelerated in October to 3.2 percent, the fastest pace in nine months, on oil costs, the government said today. The consumer-price inflation figure is due tomorrow.

China's central bank said last week in a monetary-policy report that it will ``strengthen the role of prices in managing the economy'' and improve the coordination of interest-rate and exchange-rate policies. It also said moderate currency appreciation may help to ease inflation pressures.