The latest figures show China’s trade surplus reached a record US$27 billion in October. This will give added fuel for US Treasury Secretary Henry Paulson, seen here, who is preparing for an economic summit in Beijing next month and will no doubt bang the drum about the under-valued yuan.

The trade surplus increased 13.5% from a year earlier.

The yuan’s appreciation versus the dollar had its fastest acceleration last week since China ditched a fixed exchange rate in July 2005.
The 0.6% gain took the appreciation since then to 11.6%.
Imports jumped to US$80.7 billion, while exports rose 22.3% to US$107.7bilion.

Wang Qian, an economist at JPMorgan Chase & Co in Hong Kong said global oil and commodity prices contributed to the import surge.

Where will it all end? Previously reported estimates suggest a total surplus of US$257 billion in 2007, and US$308.4 billion in 2008.

Suan Teck Kin, an economist at United Overseas Bank suggests China may allow its currency to trade freely after Beijing hosts the Olympics next year, seeking to curb excessive lending and cool the economy.
Suan Teck Kin predicts the currency will strengthen 1.8% by the end of the year to RMB7.43 per US dollar and reach RMB7.08 by the end of 2008.

Restrictions on inflows and outflows of money for investment allow the central bank to dominate the currency market.

Gains have been limited to 9.3% since a link to the American dollar was scrapped in July 2005.

Suan Teck Kin said, ‘They have to adopt a free float. When China can’t have control over its currency any more, it will solve some of the problems on liquidity.’

China allowed its currency to be freely convertible under the current account in December 1996. Foreign companies have won approvals to invest $10 billion in China’s stock and bond markets, while domestic investors have been awarded $15 billion of such quotas to buy securities overseas.

Dollar buying by the People’s Bank of China has expanded currency reserves to a record $1.33 trillion (note most carefully that is trillion as in a thousand billion.)

Ma Jun, an economist at Deutsche Bank AG in Hong Kong, does not believe China’s currency will immediately float. He said, ‘It will take at least five years. It requires a range of institutional reforms and strengthening of risk management. It also requires a broad balance of supply and demand for the currency.’

All this is a backdrop to the United States complaining slow appreciation gives Chinese exporters unfair trading advantages. China’s customs authorities said the country’s monthly trade surplus hit a new high of US$26.91 billion in June, up 85.5% over the same month last year. Huang Guohua, senior analyst with the General

Administration of Customs said this was mainly because domestic companies, whose export tax rebates were cut on July 1, were rushing exports. It is a complicated situation and will not be resolved to the satisfaction of the United States in the near future.
Source: Shanghai Daily

China’s central bank has said on its website that China has reservations towards new guidelines adopted by the International Monetary Fund because they do not fully represent opinions from developing countries.

The IMF announced Monday it had adopted new guidelines for how countries should conduct foreign currency policies.

The new guidelines add a principle that the IMF’s 185 member nations should avoid ‘exchange rate policies that result in external instability.’

The People’s Bank of China said developing countries, including China, require the IMF to consider each nation’s unique situation, and to conduct fair surveillance on the basis of common consensus, not add obligations.

Further, member nations should enhance negotiations and dialogue for better understanding and respect to help the IMF conduct surveillance and maintain the stability of the global economy and financial system.

The People’s Bank of China said experience showed that adjusting exchange rates is not the only method to balance trade gaps. In its opinion a widely-fluctuating exchange rate will affect the sustainable development and external stability of a country’s economy, as well as affect the global market.
The new rules are not unrelated to soaring trade deficits in the United States and surging trade surpluses in countries such as China.

IMF Managing Director Rodrigo de Rato announced the action in a speech in Montreal, Canada, saying it had been adopted by the agency’s 24-member executive board last Friday.

And where did the suggestion come that there should be such a change?

The United States.

The Bush administration had sought the change as a way of applying more pressure to China to change its currency system.

Rodrigo de Rato said, ‘The change we are making is the first major revision in the surveillance framework in some 30 years and it is the first ever comprehensive policy statement on surveillance.’ He said the new rule ‘gives clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not.’

US Treasury Secretary Henry Paulson said in a statement that it would send ‘a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance going forward.’

The Bush administration has been trying for nearly three years to get China to allow its currency to rise in value against the dollar as a way of dealing with a US-China trade gap which last year hit $232.6 billion, the highest ever for a single country.
Source: Shanghai Daily

China’s trade surplus soared 73% in May from a year earlier to $22.45 billion. That’s more than the $19.5 billion median estimate of 18 economists surveyed by Bloomberg News. The surplus brings the gap for the first five months to $85.76 billion, an 84% increase on a year earlier.

The Chinese government last month said it will boost imports to narrow a trade surplus with the United States that last year reached $232.5 billion. It will take some big time boosting to get over that. The Ministry of Finance raised export taxes on 142 products and cut tariffs on 209 types of imports from June 1.

The World Bank last month raised its estimate for China’s growth this year to 10.4% from 9.6% because of improved prospects for exports to Europe and developing countries.

China’s economy, the world’s fourth largest, expanded 11.1% in the first quarter.

According to a forecast by the National Development and Reform Commission, the country’s top economic planner, the trade surplus may swell to $250 billion-$300 billion in 2007 from a record $177.5 billion last year.

While on the one hand this is plainly a good thing for China it does create havoc with other economies, specifically the United States where there is definitely an anti-China movement growing over this surplus.

Anent which an odd story.

Containers go from China to Britain on a daily basis. There is not much Britain is selling China and so often the containers are coming back empty. Relatives of the writer are buying these containers once they have made one trip from China to Britain. Then the containers are painted on the outside and sprayed with foam on the inside. The total cost per container is about $2,000. The containers are then assembled on sites on the edges of town and rented out as the ultimately secure storage container at a very reasonable price.

This has now built into a sizable business with seven major depots currently running and another three starting this year. The writer has just spent two days driving around these repurposed containers and is impressed and dizzy. So for at least one business in Europe, the trade surplus has turned out to be a major benefit.
Source: China Daily Online

The World Bank raised its forecast for China’s economic growth this year to 10.4% from 9.6% on strong first-quarter growth and it also added that the nation’s economy doesn’t appear to be overheating.

The World Bank’s forecast indicates China’s 2007 growth in gross domestic product will be above 10% for the fourth straight year. In the first quarter, China’s GDP expanded 11.1% from a year earlier.

The World Bank said in its quarterly update that the top issue for China’s economy is its massive trade surplus, and Beijing should focus policy on rebalancing the economy.
Source: Wall Street Journal