“…China’s trade surplus is likely to shrink in 2008 for the first time in five years as exports slow due mainly to the rising local currency and the US economic slowdown…”

Source: AFP

China’s trade surplus is likely to shrink in 2008 for the first time in five years as exports slow due mainly to the rising local currency and the US economic slowdown, the government said Thursday.

The Customs Administration pointed to a “clear acceleration” in China’s currency, the yuan, against the dollar, a slowdown in overseas demand due partly to the anaemic US economy and a surge in global protectionism.

“We forecast that for the full year, the slowdown in exports will continue, while imports will keep picking up speed,” it said in a statement.

“This will result in a reversal of the swift growth in the trade surplus and in the trade imbalances.”

China’s trade surplus hit 58 billion dollars in the first four months of the year, down 7.9 percent from the same period in 2007.

The surplus had surged to a record 262.2 billion dollars last year, up 47.7 percent from 2006. Last year’s figure was a 10-fold rise from 2003, when the surplus first started to expand dramatically.

Ma Qing, an economist with CEB Monitor, a Beijing-based research institute, said the shrinking trade surplus would definitely impact on China’s economic growth.

“The question is how big the impact will be and if the losses in the export sector will be made up for by growth in domestic demand,” he said, predicting China would grow 10-10.5 percent this year, against 11.9 percent in 2007.

China’s economy is the world’s fourth-largest and grew 10.6 percent in the first quarter from a year earlier.

Trade partners use its surplus as ammunition to persuade Beijing to let the yuan rise more quickly. They argue the currency is kept artificially low, giving the nation’s exporters an unfair price advantage in global markets.

The yuan has risen steadily from 8.3 to the US dollar about three years ago to roughly 6.9 currently since China loosened its peg to the greenback.

However, it has been moving at a snail’s pace since it breached the 7.0 level on April 10, amid some opposition from exporters who fear a strong yuan will make their products less competitive.

Stephen Green, a Shanghai-based economist with Standard Chartered, said in a research note that “over-blown” worries in China about exports were “fuelling opposition” to yuan appreciation.

The Organisation for Economic Cooperation and Development said Wednesday that China’s export machine faced challenges.

Wage and price inflation were set to erode China’s export competitiveness, it said, adding the European Union had now become China’s biggest export market given the slowdown in the US following the subprime mortgage default crisis.