That won’t go anywhere as a horror flick title, but the specter of China’s ever growing trade surpluses is focusing the mind of its trading partners.
Some hoped that these surpluses would correct themselves naturally over time as the Chinese population started consuming more and its economy became less dependent on exports. That clearly isn’t happening anytime soon.
But in the chorus of calls for corrective measures, no one seems to be attuned to the danger of getting what they wished for. Even a gradual reduction of China’s surplus with the US means less foreign capital flows into our market, which in turns means less cheap credit, which in turn means lower asset prices. The day of reckoning has to come eventually, but those who bring it on may come to regret their actions.
From the Financial Times:
China’s trade surplus grew in April, setting the scene for a tense meeting in Washington this month aimed at tackling bilateral disputes.
China recorded a surplus of $16.9bn (£8.5bn), more than double that of March, Beijing announced on Friday. For the first four months of the year, the surplus reached $63.3bn, 88 per cent higher than for the same period in 2006.
More important than the monthly figure is the continued acceleration of the trend of the past two years, in which exports have outpaced imports with China’s main trading partners, the US and Europe, by a significant margin.
Stephen Green, an analyst at Standard Chartered bank in Shanghai, issued a report on Friday predicting that China’s current account surplus would hit $400bn this year, equal to about 12.8 per cent of GDP.
This would be unprecedented for a country of China’s size and stage of development. Surpluses of this magnitude have usually been recorded only by smaller nations growing out of a crisis, or by significant oil exporters.
China’s current account surplus for 2006 was $249.9bn, or 9.5 per cent of GDP, well ahead of consensus predictions 12 months ago.
China is sending up to 14 cabinet-level officials to Washington this month for the second Strategic Economic Dialogue, a forum established to provide a long-term framework to manage the two nations’ relationship. But with many shorter-term issues on the agenda, the dialogue is being transformed.
Hank Paulson, US Treasury secretary, who initiated the dialogue, has shifted the emphasis in talks from an overwhelming focus on the currency to a discussion on opening China’s financial and other service markets.
The renminbi remains sensitive in Congress, which has noted that its appreciation has slowed in recent months, to an annual rate of about 2 per cent. China’s critics say Beijing deliberately keeps the currency low to support its export industries.
Even though Chinese exports have surged since the renminbi was unpegged from the dollar in mid-2005, Beijing remains sensitive to any impact on the economy and employment from currency appreciation.
A think-tank under the ministry of labour and social security said this week that another 5-10 per cent appreciation in the currency could put 3.5m urban workers out of a job, and hurt 10m farmers.
“The appreciation will negatively influence such labour-intensive and export-dependent sectors as textiles and apparel, toy making, motorcycles, furniture, bicycle-making and agriculture,” its report said.
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WSJ: Obviously it isn’t known whether the new format would cut down on attempts to game the numbers
Not strictly known, perhaps, but I can make a pretty good guess: the new format will not cut down on attempts to game the numbers. The more important question is will it cut down on the successful attempts.