China Trade Surplus Rebounds in April, Keeps Yuan in Focus
China's trade surplus rebounded in April after a surprising slump the month before, handing new ammunition to U.S. critics who say Beijing is keeping the yuan unfairly undervalued to help the country's exporters.
The surplus rose to $16.87 billion from $6.9 billion in March and $10.5 billion in April 2006. Economists polled by Reuters had expected a figure of $15.9 billion.
Taking a longer view to iron out seasonal volatility in the data, the cumulative surplus in the 12 months through April was $207.3 billion, up from $200.8 billion in March and $113.8 billion in April 2006.
"The trade figure shows that the abrupt slowdown in March was a result of some temporary factors and the general trend of rapid surplus growth has not changed at all," said Li Huiyong, an analyst at Shenyin & Wanguo Securities in Shanghai.
That conclusion will not go unnoticed in Washington, where senior Chinese and U.S. officials will meet for economic talks on May 22-24 against a background of rising protectionist sentiment in the U.S. Congress.
"As for the currency, it's coming to a head with the pending visit, together with the U.S. Congressional hearings," David Cohen with Action Economics in Singapore said.
The yuan climbed on Friday to its highest level since Beijing abandoned a peg to the dollar in July 2005 and allowed the currency to float within managed bands. It is now worth 7.6855 per dollar and has gained a further 5.5% since it was revalued by 2.1% at the time it was depegged.
U.S. lawmakers, manufacturers and Treasury Secretary Henry Paulson have all expressed frustration that China is not allowing the yuan to climb faster.
They say the yuan would be much stronger if it were exposed to market forces, given China's strong productivity gains, record foreign currency reserves of $1.2 trillion and a current account surplus that reached 9.5% of national income.
China shares the policy aim of reducing the trade surplus in order to improve the balance of the economy, but the central bank said on Thursday that boosting imports -- not boosting the value of the currency -- would be the main tool to attain that goal.
Mingchun Sun, an economist at Lehman Brothers in Hong Kong, said: "On the currency side, I still think the pace of appreciation will be gradual -- about 3% to 5% a year. The government is trying multiple approaches to balance trade and currency appreciation is only one of them."
Sun said the good news from the trade report was that annual import growth accelerated to 21.1% in April, from 14.5% in March, reflecting strength in demand for both investment and consumer goods.
Exports, though, grew even faster in April, by 26.6%.
Sun said he expected the government to enact a range of policies that would make Chinese goods more expensive, including cuts in export tax rebates; reform of energy pricing; steps to protect the environment and intellectual property; and, measures to improve health and safety at work.
"These will all increase Chinese enterprises' production costs. So even if the exchange rate doesn't appreciate faster, the competitiveness of Chinese exporters should decrease," Sun said.
Cohen was more cautious about the trend. Although the April surplus was smaller than in the final three months of last year, after seasonal adjustments it was in fact larger, he said.
The surplus in the first four months of the year totaled $63.31 billion, a whopping 88% more than in the same period last year.
For all of 2006, China's surplus soared 74% to $177.47 billion. Estimates for the full year in 2007 range from $220 billion to $250 billion.