The Chinese government released figures Friday showing the country's trade surplus remains high, but is shrinking as imports outpaced exports in August. Two economists, who watch China closely, expect Beijing to continue to resist American pressure to allow its currency to appreciate more rapidly to makes its exports more expensive and help accelerate the slow growth in the U.S. economy.
The August figure was slightly more than $20 billion with imports outpacing exports. The figure is lower than July's of nearly $29 billion. Yet, it is the third consecutive trade surplus in excess of $20 billion and, according to chief China economist Ben Simpfendorfer of the Royal Bank of Scotland in Hong Kong, it is likely to exacerbate trade friction with the United States over claims the Chinese currency, the yuan, is undervalued:
"That trade surplus has certainly fallen over the last three months, but it does remain at a very high level. And, it does give the U.S. Congress reason to be critical of China's currency policy, especially given that we've seen very little move on the currency over the last month or so. I think most important, though, that exports have actually weakened over the last three months and that will, in turn, give China, particularly the Minister of Commerce, and some concern over its own export sector and it will continue to resist even modest changes in the currency," said Ben Simpfendorfer.
China's exports grew just over 34 percent in August, about $140 billion, compared to July's 38 percent, about $145 billion. Simpfendorfer expects exports to continue to decline through the end of the year. That, says Ken Peng, an economist with Citibank in Beijing, coupled with rising imports, will only make China dig in its heels over the currency issue:
"Compared to last month, the amount of the surplus is much smaller and, also, the amounts of imports are much larger. So, I think, from Beijing's perspective, this will actually argue for the opposite because imports are rising and the surplus is shrinking, but from Washington DC's perspective, I don't think this will help much. I think there's a very strong voice to try to remedy America's employment situation through trade," said Peng.
U.S. Treasury Secretary Timothy Geithner said Wednesday that China has "not let the currency move very much so far and we'd like to see them move more quickly." Some U.S. lawmakers have been pressing the Obama Administration to demand a speedier appreciation of the yuan. The U.S. House Ways and Means Committee is set to discuss the matter during a hearing this coming week. China has limited the currency's appreciation to less than one percent versus the dollar since a June pledge for greater flexibility.
Citibank's Ken Peng says one reason for China's resistance to greater appreciation is that its own domestic economy is slowing.
"I think China's domestic economy is slowing because of various tightening measures domestically and also exports, going forward, will face weakness as well because demand for the U.S. and Europe will continue to slow down," he said.
China's economy grew 10.3 percent in the second quarter after an 11.9 percent growth rate in the first quarter. Ben Simfendorfer of RBS expects an annual growth rate in 2010 in China of between 8 percent and 9 percent. And, with concerns about inflation lingering, he says the Chinese central bank may actually raise a key interest rate to dampen demand.