China chalked up a trade surplus of $23.91 billion in September, the fourth-largest on record, giving more ammunition to foreign critics who say Beijing has an unfair edge in world markets by keeping the yuan undervalued.
The surplus was down from $25.0 billion in August but up from $15.3 billion in September 2006, the customs administration said on Friday.
The outcome beat forecasts of $22.0 billion and took the surplus for the first nine months to $185.65 billion, up 69% from $109.85 billion in the same period last year.
China has now exceeded the record surplus of $177.47 billion for all of 2006, with the three busiest months for exporters in the run-up to the Christmas holidays still to come.
"I think the trade balance will remain a long-term issue, will continue to put pressure on the currency," said Jun Ma, chief China economist for Deutsche Bank in Hong Kong.
The torrent of foreign exchange earned by exporters is a big headache for the central bank, which finds itself buying more and more dollars to prevent the yuan's exchange rate from rising sharply.
China's foreign exchange reserves are a world-beating $1.4 trillion, powerful evidence to most economists that the yuan is indeed undervalued.
The European Union ratcheted up pressure over the yuan this week, announcing it would send its top three economic policy makers to Beijing before the end of the year to argue that a stronger currency was very much in China's own interest.
Not The Answer
China has let the yuan gain a further 8% against the dollar since it was revalued by 2.1% in July 2005 and untethered from a dollar peg to float within managed bands.
That shift in exchange rates is gradually helping American manufacturers and farmers. U.S. exports to China were a record $5.9 billion in August, helping to reduce the bilateral deficit to $22.5 billion, down 5.4% from July.
But the authorities, worried about the risk of export job losses, have turned a deaf ear to entreaties that a much faster pace of appreciation is needed to rebalance the economy and help the central bank manage monetary policy.
Indeed, against a basket of currencies, the yuan has not risen much at all. And it has actually fallen by about 8% against the euro since July 2005. Partly as a result, China is now exporting more to the EU than to the United States.
Zhang Yansheng, a director at the Institute of International Economic Research in Beijing, said he expected China's trade surplus to keep growing for the foreseeable future. But he argued that the exchange rate was not the solution to the imbalance.
"The yuan is not the answer to solve the problem because exporters in China are not so sensitive to prices," said Zhang, whose think-tank is affiliated to the National Development and Reform Commission, the main economic planning agency.
What's more, China's growing volumes of high-technology exports are churned out by foreign-owned companies, which are not about to pull out of the country, Zhang said.
"China needs a broad review of its trade policies and its whole trade system, which was built up when the country was short of foreign exchange, to address the structural problems. It is not right just to focus on the yuan," he said.
While China's exports increased by a solid 22.8% in September from a year earlier, import growth of 16.1% fell short of expectations.
Ma at Deutsche saw the forces of import substitution at work as Chinese companies increasingly have the ability to produce goods that they previously had to buy overseas.