Learn Chinese - China racks up record trade surplus in May

CHINA / National

China racks up record trade surplus in May
(Reuters)
Updated: 2006-06-12 11:57

China raked in a record monthly trade surplus of US$13.0 billion in May,
but analysts said that Beijing was unlikely to respond by allowing the
yuan to appreciate more quickly.

The surplus marked a jump from $9 billion last May and contributed to a
cumulative surplus in the first five months of $46.8 billion. That
compared with around $30 billion in the same period of last year, when
the surplus for the year hit $102 billion.

Although the United States and other countries have urged China to lift
its exchange rate to restrain exports, economists doubt it will move
before assessing the effect of other policies aimed at stoking inadequate
private consumption, which they see as the underlying cause of the
surplus.

"The trade surplus is very much a structural problem and adjusting the
exchange rate alone will not resolve the problem," said Wang Chuanglian,
economist at Great Wall Fund Management in Shenzhen.

"The structural adjustments pledged by the government, such as reducing
the savings rate and boosting consumption, will need time to show their
effects," he said.

Wang said he expected the May surplus, which beat the previous record of
$12 billion reached last October, to feed into an annual surplus of up to
$140 billion.

"But the authorities are unlikely to let the yuan appreciate drastically,
otherwise domestic companies will feel the pinch," he said.

Tim Condon, head of Asian financial market research at ING in Singapore,
agreed that the trade surplus was mainly structural, reflecting mainly
exports of machinery and transport equipment, and would not be reversed
any time soon.

"I think China has emerged in 2005 as a huge net exporter of that kind of
good and it's just going to get more and more competitive in producing
those sorts of products," he said.

The May surplus reflected an annual growth in exports of 25.1 percent and
import growth of 21.7 percent.

Condon concurred with Wang that the May surplus was not likely to prompt
further yuan appreciation.

"I think the whole yuan issue seems to have gone quiet. ... It may get
some headlines from the China bashers in Washington, but I don't think
there's going to be a lot of traction from this number," Condon said.

"After that really big spike in chatter over this in April and early May,
I think it's gone quiet and I think it will remain quiet at least for a
while."

Separate data on Monday showed inflation remained subdued, despite
China's roaring economic growth. May consumer prices were just 1.4
percent higher than a year earlier.

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