China is set to face renewed international pressure to allow its currency to appreciate faster as its trade with other countries remains robust while growth prospects falter in western economies.
China’s trade surplus shrank to $17.8 billion in August from $31.5 billion in July, but exports rose faster than expected, increasing 24.5 percent from a year earlier, compared with July’s 20.4 percent increase, new government figures show.
Despite the smaller monthly surplus, analysts said Beijing was still likely to face increased demands to allow faster appreciation of its tightly managed exchange rate.
“The level of the trade surplus is still at a very high level and the stronger-than-expected reading of exports growth [in August] is making it more difficult for the people arguing against appreciation,” said Yu Song, an economist at Goldman Sachs. “We expect the government to allow further currency appreciation in the coming months.”
The smaller trade surplus was mainly due to an unexpected surge in imports, which jumped 30.2 percent in August from a year earlier — far exceeding forecasts for a 21 percent rise and up from a 22.9 percent increase in July.
Economists said the rebound in imports was mostly due to Chinese companies’ restocking of raw materials such as refined oil, iron ore and other metals.
On Sunday, Alain Juppé, the French foreign minister, told reporters his government believed that the Chinese currency was undervalued and he would raise the issue when he visits Beijing this week on his way back to France from Australia.
In the U.S., the Republican presidential hopeful Mitt Romney revived the renminbi as a key theme in national politics last week when he referred to China as a “cheater” and promised to declare it a “currency manipulator” — an official term that can trigger trade sanctions under U.S. law — if he were elected.
After six years of tightly managed, gradual and interrupted appreciation of the renminbi, the currency remains undervalued by most estimates. This helps Chinese exporters by making their goods cheaper on world markets.
As the growth outlook deteriorates again in developed economies such as the U.S. and European Union, the perceived unfair advantage that China enjoys from an undervalued currency is likely to become a growing concern among embattled western politicians.
The fact that China’s own economy appears to be heading for a “soft landing”, with continued high levels of growth, will only stoke further resentment among leaders contemplating the possibility of a fresh recession.
After recording its first deficit for years in the first quarter, China’s trade balance has surged back into surplus and is now down only 10 percent in the first eight months from the same period last year.
Economists expect the surplus to remain high for the rest of the year.
Early last month, China’s central bank allowed the value of the renminbi to rise by almost 1 percent against the U.S. dollar over the course of one week — a much faster rate of appreciation than normal — leading some to speculate that Beijing was preparing to revise its currency policy.
But the rate of appreciation quickly returned to the roughly 6 per cent annual increase that Beijing has allowed in recent years.