China's trade surplus surges 73 percent

By Joe McDonald
Associated Press
Monday, June 11, 2007

http://news.yahoo.com/s/ap/20070611/ap_on_bi_ge/china_trade_surplus

BEIJING -- China's politically sensitive trade surplus soared in May to the third-highest monthly level on record, according to government figures released Monday, amid growing pressure from U.S. lawmakers for sanctions against Beijing.

The surplus hit $22.5 billion (16.9 billion euros), up 73 percent from last May, the Chinese customs agency said on its Web site. Exports jumped 28.7 percent to $94 billion (70 billion euros), while imports rose 19.1 percent to $71.6 billion (53.6 billion euros).

China has promised to narrow its yawning trade gap under pressure from Washington and other governments, but economists say multibillion-dollar surpluses are likely to continue.

The United States wants Beijing to raise the value of its currency, the yuan, which critics say is undervalued, giving Chinese exporters an unfair advantage. Several American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act.

Senior American and Chinese envoys met last month for the second round of a high-level dialogue meant to address trade disputes. But they have failed to defuse tensions with the U.S. Congress, where lawmakers say support for trade penalties is growing.

The United States reported a $232.5 billion trade deficit with China in 2006, and this year's figure is expected to surpass that.

President Hu Jintao's government insists it isn't actively seeking a trade surplus and is taking steps to rein in booming exports by imposing taxes on steel shipments and repealing export rebates.

China ended the yuan's direct link to the U.S. dollar in July 2005 and raised its value by 2.1 percent. Since then, the yuan has been allowed to rise by about 5.7 percent in tightly controlled trading. It has trading recently at about 7.65 to the dollar. Many economists say a change in the yuan's exchange rate on its own is unlikely to close the U.S. trade gap.

The European Union was China's biggest trading partner in the first five months of the year, with total two-way commerce rising 29 percent to $129.9 billion, according to the customs agency. It gave no breakdown of imports and exports.

The United States was in second place, with two-way trade rising 18.2 percent to $115.2 billion from January to May, the agency said. Japan was No. 3, with trade up 15.5 percent at $91.2 billion.

Beijing is trying to reduce dependence on exports by encouraging China's consumers to spend more, which would increase imports and narrow the trade gap. But that has had only limited success, with exports still growing much faster than domestic retail sales.

The influx of foreign money has strained Beijing's ability to contain pressure for prices to rise. The central bank has been forced to drain billions of dollars a month from the economy by selling bonds, piling up reserves that have topped $1.2 trillion.

So far this year, China's global trade surplus totals $85.8 billion (64.3 billion euros), equal to nearly half the total $177.5 billion surplus reported last year. That is smaller than the bilateral trade gap with the United States because China has deficits with some countries.

The World Bank and other experts say this year's trade surplus could top $250 billion.

The May surplus was just below the all-time monthly high of $23.8 billion reported last October. The government reported a $23.7 billion surplus in February, but experts said that figure was swelled by exporters shipping goods early to beat a change in taxes that was expected to occur in March. The March surplus was just $6.9 billion.

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