China’s Trade Surplus Swells, Yuan Continues to Rise

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Nov. 10 – Leaping ahead of forecasts, China’s trade surplus swelled to US$27.15 billion for the month of October, which will likely add pressure on Beijing over its currency policy as world leaders meet this week for the G20 summit in Seoul.

Exports were up 22.9 percent year-on-year while imports rose 25.3 percent according to China’s General Administration of Customs. The county’s trade surplus rose sharply to US$27.1 billion from September’s US$16.9 billion, and was just shy of July’s high of US$28.7 billion.

In an email note, Bank of America-Merrill Lynch said that China’s October inflation rate may be at around 4.4 percent and new lending may be higher than estimates at close to RMB600 billion.

Meanwhile, China’s currency, the yuan, strengthened to 6.6364 against the dollar Wednesday, its highest point since 1993.

In a possible preview of Beijing’s position in Seoul, Chairman of the Import-Export Bank of China Li Ruguo rejected the notion that the yuan is undervalued. He added that a rapid rise in the yuan would create job losses in China and Western nations would have to be prepared to accept an influx of Chinese immigrants.

The latest five-year plan, drafted in October by the ruling Communist party, aims to reduce reliance on exports by promoting domestic consumption. But without major structural changes to its economy, China’s trade gap should widen with the rest of the world, the World Bank and private sector analysts note. UBS is forecasting a US$200 billion surplus this year and US$220 billion in 2011.

Reducing such huge imbalances requires cooperation between governments and will be a long and drawn out process.

“The rebalancing of China’s economy has an awfully long way to go. In fact it’s hardly even got started,” said Mark Williams, an economist at Capital Economics Ltd. in London.