January 11, 2008 / 9:45 AM / 12 years ago

UPDATE 2-China's 2007 trade surplus soars but may be peaking

(Adds more reaction, details)

By Jason Subler and Eadie Chen

BEIJING, Jan 11 (Reuters) - China’s trade surplus for all of 2007 jumped to a record of more than $262 billion, about 48 percent higher than in 2006, but data on Friday suggested that policies to rein in exports are starting to bear fruit.

The surplus for December alone came in at $22.7 billion, below forecasts of $24.5 billion and well down on October’s record $27.1 billion, while imports grew faster than exports for the third month in a row.

Most economists expect this trend to persist this year, which U.S. and European policy makers would consider a step in the right direction. They have put China under intense pressure to reduce the imbalance by letting the yuan rise more quickly.

While some analysts still see the trade surplus growing in 2008, Zhao Qingming, an economist at China Construction Bank in Beijing, said it could end up little changed at $260 billion.

“Looking forward, China’s exports are bound to expand by a much slower clip as policies to curb exports start to bite more as time goes on, as external demand sags in the wake of a global economic slowdown and as the yuan rises,” Zhao said.

At the same time, strengthening domestic demand and high commodity prices will boost imports, added Tao Wang, chief Greater China economist for Bank of America in Beijing. She, too, has $260 billion pencilled in for the 2008 surplus.

That would still be large enough to keep upward pressure on the yuan, Wang said in a note to clients.

The currency CNY=CFXS rose on Friday to 7.2600 per dollar, its highest level since it was revalued in 2005.

Analysts say appreciation in the closely controlled currency is picking up, reflecting a policy shift in Beijing partly aimed at combatting inflation, which has surged to an 11-year high.

MODEST PROGRESS

The monthly fall in the trade surplus in December was largely welcome, said Jun Ma, chief China economist at Deutsche Bank in Hong Kong.

“The smaller surplus is largely welcome, and it presents a modest argument for the Chinese government that their efforts to reduce the trade balance are beginning to work,” Ma said.

As well as letting the yuan rise more swiftly — as demanded by Washington and Brussels — China has introduced a slew of measures to cut the surplus.

It has reduced tax refunds on about a third of export lines, slapped export taxes on goods such as steel and scrapped import duties on other items.

“Overall export growth started to slow down in the second half of 2007 and import growth accelerated significantly,” the customs administration said in a statement.

“The trend of a rapidly expanding trade surplus has been effectively contained, and policy adjustments have achieved initial results,” it said.

A telling sign that growth in the surplus is losing momentum is the rolling 12-month sum, which shows the underlying trend by ironing out seasonal fluctuations.

The full-year surplus of $262.2 billion was just $1.9 billion more than the total in the 12 months to November, which had been $4.4 billion more than in the 12 months to October.

For 2007 as a whole, export growth slowed by 1.5 percentage points while import growth picked up by 0.9 percentage point, boosted by soaring prices for commodities such as oil and soybeans. [ID:nPEK318283] [ID:nPEK327931]

Detailed figures by the customs administration showed the declining relative importance of the United States and Japan for Chinese exports, which have been one of the main drivers of the country’s double digit growth during the past five years.

China’s overall exports grew 25.7 percent last year, but those to the United States and Japan were up just 14.4 percent and 11.4 percent respectively.

By contrast, shipments to the European Union — China’s largest two-way trading partner — jumped 29.2 percent and exports to Southeast Asia rose 32.1 percent. [ID:nPEK324794]

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