More Fire In Dragon's Trade

The Age

Tuesday June 13, 2006

BEIJING

CHINA posted a record $US13 billion ($A17.4 billion) trade surplus last month and inflation accelerated, increasing pressure on the Government to allow the yuan to strengthen.

The surplus widened from $US10.5 billion in April as exports jumped 25.1 per cent. Consumer prices rose 1.4 per cent from a year earlier, the most in four months.

Surging exports are flooding China's economy with cash, undermining government efforts to control inflation and lending for investment projects. A stronger currency would help reduce the imbalance and appease US lawmakers who want to stem a record trade deficit with China and are calling for tariffs.

"The Government wants to keep a lid on money supply and lending growth to prevent it from stoking inflation and asset price bubbles," Tai Hui, an economist with Standard Chartered Bank in Hong Kong, said.

Royal Bank of Scotland economist Ben Simpfendorfer forecast the trade gap would widen to $US150 billion this year - almost equal to the gross domestic product of Thailand - from last year's record $US102 billion. Exports reached $US73.1 billion last month and imports rose to $US60.1 billion.

China's money supply jumped 19.5 per cent last month, the fastest gain since December 2003.

A stronger currency would slow exports, which helped create China's 10.3 per cent economic growth in the first quarter. People's Bank of China governor Zhou Xiaochuan raised benchmark lending rates in April to cool lending for investment and has pledged to gradually withdraw from the nation's currency market.

Higher food and fuel prices pushed China's inflation rate higher last month. Food prices rose 1.9 per cent from a year earlier and costs of fuel and car parts were up 13.2 per cent.

China's current account surplus more than doubled to $161 billion last year.

© 2006 The Age

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