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Factors Behind China's Unyielding Trade Surplus Growth
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China's rapidly swelling trade surplus in the first two months of this year astonished experts, who believed it was mainly attributable to the nation's trade structure and soaring exports in anticipation of lower tax rebates and appreciation of the RMB.


According to customs data, the processing trade accounted for 80 percent of the surplus, of which foreign-funded enterprises made up an overwhelmingly large proportion. Given the sustained, rapid growth in the global economy, it is difficult for China to reduce the surplus in the short term.


"The situation will probably remain largely unchanged in the next decade," said Yi Xianrong, a renowned economist with the Chinese Academy of Social Sciences.


China chalked up a trade surplus of US$23.76 billion last month, a growth of nearly 50 percent month-on-month and a record for February.


According to customs sources, the trade surplus for the first two months amounted to US$39.6 billion, US$27.6 billion higher than the same period last year. It exceeded the surplus for the first quarter of last year and amounted to 22 percent of the whole 2006 figure.


Customs data showed wide gap between growth rates for imports and exports. Last month, China's export value stood at US$82.1 billion, up 51.7 percent over the same period last year, and the import value was US$58.3 billion, up 13.1 percent.


Appreciation of the yuan has in the short term meant increased revenues for exporters, while imported primary products, which were less costly, led to a slower rise in the value of imports, said Mei Xinyu, a research fellow with the Research Institute of International Trade and Economic Cooperation under the Ministry of Commerce.


Some other experts said the fast growth in exports was attributable to strong demand for China-made products worldwide.


In the first two months, China's sales to the United States, Japan and the European Union, whose economies maintained their vigor, grew more than 20 percent, and those to the EU soared more than 50 percent.


Greater export activity by domestic enterprises in anticipation of lower tax rebates and RMB appreciation, also contributed significantly to the rapid growth, experts believe. Generally speaking, the RMB's sustained appreciation will help dampen Chinese exporters' earnings in the long run.


The government hoped to curb exports of products with high energy consumption, high pollution and low added value. But in the first two months, exports of rolled steel and steel billets surged more than 100 percent, while those of textiles and garments rose more than 30 percent.


Meanwhile, Lin Yifu, a leading economist, said the unduly fast growth in the trade surplus was also attributable to manufacturers fraudulently claiming tax rebates.


He said many enterprises exaggerated their export volume so as to claim higher rebates.


Hu Huaibang, a senior official with China Banking Regulatory Commission, noted that international hot money flowed into China's real estate and capital markets and had its high investment returns remitted abroad through bogus trade. This also exaggerated export value.


In terms of imports, Li Huiyong, an analyst with Shenyin Wanguo Securities, said many companies suspended production during the week-long Chinese Lunar New Year holiday in February and postponed imports of raw materials and equipment.


The relatively slow growth in arrivals was also ascribed to less demand for imports that have been substituted by domestically-made products.


Remedies were suggested for mitigating the huge trade surplus, including taking tough measures to squeeze export bubbles, increasing domestic demand, readjusting export-related taxes and expanding imports, particularly of new and high-technology products and energy-efficient equipment.


Zhang Jiao, a national political consultant, believed the conditions were ready for scrapping tax rebates on exports.


Other experts said it was necessary to further ease foreign exchange controls so as to encourage more Chinese firms to invest abroad.


Some national legislators have suggested that monetary policy be readjusted to curb the inrush of hot money. Interest rates on deposits should be maintained at a low level, while interest rates on loans and the required reserve ratio for commercial banks should be kept high, they said.


The Shenyin Wanguo Securities predicted that this year China's trade surplus would exceed US$210 billion, a growth of US$40 billion from the 2006 level.


(Xinhua News Agency March 14, 2007)


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