Economy

Trade surplus heads south

By Li Xiang and Gao Changxin (China Daily)
Updated: 2010-09-11 09:05

August macro economy statistics

Import surge in August reflects robust domestic demand, say analysts

BEIJING - China's trade surplus is expected to further narrow for the rest of the year as the pace of imports gathers momentum on the back of robust domestic demand and favorable government policies, analysts said on Friday.

Trade surplus narrowed to $20.03 billion in August, as imports rose by 35.2 percent to $119.27 billion, much faster than July's 22.7 percent growth, according to the General Administration of Customs.

Exports softened by growing only 34.4 percent to $139.3 billion, compared with July's 38.1 percent growth.

The size of the trade surplus was much smaller than earlier expectations of a $30 billion surplus.

Analysts said the stronger-than-expected rebound in imports reflected solid growth in domestic demand. It also indicated that the economic slowdown is not as severe as some had previously feared, they said.

"The country's trade balance is likely to shrink further in the coming months - not just because of weaker demand from the United States and Europe, but because of rising wages, robust consumption, healthy investment drive and strong imports," said Matthew Circosta, an economist with Moody's Analytics Inc.

Mechanical and electrical product imports gained 3.8 percent month on month in August, while imports of raw materials eased somewhat last month, except copper and aluminum.

Dong Xian'an, chief macroeconomist with Industrial Securities, said domestic demand has shown clear signs of recovery and the upward momentum will continue for the rest of the year.

The government has vowed to encourage imports of products including advanced technology and key equipment in an effort to further narrow the trade gap.

Minister of Commerce Chen Deming told China Daily earlier this week that China's imports are expected to rise on the back of the government policies and the trade surplus for this year will be maintained at a small and controllable level.

Related readings:  China to see small trade surplus in 2010: Commerce Minister  Trade surplus not worrisome: Chen  Needed stimulus to ease trade surplus  Not pursuing trade surplus

But some analysts said the nation's export and import growth may show a downtrend as the global economic slowdown is still ongoing and domestic policies have a tightening tilt.

"As China still relies largely on its exports, it means imports cannot outpace exports in the near term as domestic policies are being tightened," Ken Peng, a Beijing-based economist with US bank Citigroup said in a report.

But the unexpected shrinkage in the trade surplus will ease pressure from China's key trading partners like the United States for an appreciation of the yuan.

US Treasury Secretary Timothy Geithner is due to face questions at a US Congressional hearing next week on possible new steps to press China over its exchange rate policy.

Gao Shanwen, chief economist with Essence Securities, expects the yuan to appreciate by 2 percent this year and said the Congressional hearings will have little impact on China's currency policy.