Tuesday, July 10, 2007

Debtors' Prison

China's Trade Surplus Soars to Record $26.9 Billion

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By Nipa Piboontanasawat

A truck carries a shipping container July 10 (Bloomberg) — China's trade surplus soared to a record $26.9 billion in June, outpacing economists' estimates and stoking trade tensions, after companies rushed to beat a deadline for export incentives.

The surplus almost doubled from a year earlier, the General Administration of Customs said today on its Web site. That beat the $23.8 billion median estimate of 15 economists surveyed by Bloomberg News.

The record heightens tension with the U.S. after claims that China's currency is undervalued and the nation has exported dangerous and contaminated products. Export rebate cuts from July 1 may curb overseas sales and the inflows of cash that threaten to fuel boom-and-bust investment cycles in the world's fourth-biggest economy.

``Tax changes, strong global demand and the improving competitiveness of Chinese exports are sources of the ballooning trade surplus, said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``Trade disputes between China and the U.S. will intensify.

Sales abroad rose 27.1 percent from a year earlier and imports gained 14.2 percent. The surplus for the first six months was $112.5 billion, up 84 percent from a year earlier. Last year's $177.5 billion trade gap was a record.

China's undervalued currency makes the country's exports cheaper and costs U.S. manufacturing jobs, lawmakers say. Senators Hillary Clinton and Barack Obama will co-sponsor legislation pushing for faster gains, the Financial Times reported on July 6, citing aides.

U.S. Trade Deficit

The U.S. trade deficit with China reached a record $232.5 billion last year. The gap was $76.3 billion through April, according to U.S. figures.

The yuan has gained 8.8 percent since a decade-old peg to the U.S. dollar ended in July 2005. China has allowed daily fluctuations of as much as 0.5 percent against the U.S. currency since May, up from the previous 0.3 percent. U.S. lawmakers have said the currency is undervalued by as much as 40 percent.

The Food and Drug Administration slapped a ban on imports of some farm-raised seafood from China on June 28, alleging possible drug contamination. Pet-food and toothpaste ingredients and lead-painted toys have also raised safety concerns.

China's ambassador to the U.S., Zhou Wenzhong, vowed to toughen food safety standards during a May 9 meeting with members of Congress and FDA Commissioner Andrew von Eschenbach. The nation has described some U.S. claims about product dangers as unscientific, exaggerated and wrong.

Loaded Trucks

The trade surplus will probably narrow in the second half of 2007 after the changes to export incentives, Vice Commerce Minister Wei Jianguo said on July 3. Loaded trucks jammed roads to Shanghai's port for more than a week before the deadline for the export rebates, Hong Kong-based newspaper Wen Wei Po reported.

Wei's view contrasts with the National Development and Reform Commission's forecast of a jump to a $250 billion to $300 billion trade gap.

The flood of export cash has complicated efforts to curb investment and asset bubbles. The benchmark CSI 300 Index of stocks has climbed 87 percent this year. Factory and property investment increased 25.9 percent from a year earlier in the first five months.

The central bank has raised interest rates twice this year and ordered lenders to set aside larger reserves five times.

U.S. Treasury Secretary Henry Paulson last month said he will look for ways to be ``more creative'' in pressing for increased yuan flexibility. He declined to call the country a currency manipulator.

Original article posted here.

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