MercoPress. South Atlantic News Agency

Euro-zone and Beijing clash over China's trade surplus

China's trade surplus reached 23.91 billion US dollars in September, the fourth largest on record. Demand from Europe and the US boosted exports despite cuts in tax rebates aimed at curbing its export boom.

This means China has now exceeded the record surplus of 177.47 billion set in 2006, with the busiest final quarter for exporters in the Christmas run-up still to come. The surplus provides ammunition for critics who say China is keeping its currency low to benefit its exporters. While the European trade deficit with China has continued to grow this year, the Yuan has fallen by at least 5% against the Euro over the past two years. In the same period, the Chinese unit has strengthened by just below 10% against the dollar. Last week the 13-nation Euro-zone ministers broke new ground with a statement that for the first time identified the Chinese currency Yuan level as a greater source of concern to Europe than the level of the dollar or yen. The EU is frustrated with the Euro-Yuan exchange rate not only because of China's ever-increasing trade surplus with Europe, but also because the dollar's decline means the Euro is bearing the brunt of China's reluctance to allow an appreciation of its currency. "China and other emerging nation economies should introduce more flexibility in their exchange rate management. This is good for China's growth" Joaquín Almunia, the EU monetary affairs commissioner, said before the start of an EU finance ministers' meeting in Luxembourg. "First point China, second point dollar, third point yen," said Jean-Claude Juncker, chairman of the Euro-zone finance ministers' group. The ministers also announced that Mr Almunia, Mr Juncker and Jean-Claude Trichet, the European Central Bank president, would travel to China before the end of the year for high-level discussions on exchange rates and other issues. Nicolas Sarkozy, France's president, and his government have demanded that the ECB play a more active role in bringing down the Euro against the dollar, if necessary by cutting interest rates. But Germany, backed by Austria and the Netherlands among others, are wary of any initiatives that risk compromising the central bank's independence from political interference. The result was a relatively mild statement on the dollar, even though some European representatives plan to raise the issue more forcefully at a meeting of Group of Seven countries in Washington on October 20-22. Soaring imports of Chinese goods into the US have also led to demands in Congress for legislation to penalize China for its currency controls. China has let the Yuan rise by around 8% since it revalued the currency in July 2005, and decoupled it from the US dollar. However, many analysts believe the currency remains undervalued given China's big external payments surplus and strong productivity growth. Chinese exports in September rose 22.8% year-on-year to 112.5 billion while imports were up 16.1% at 88.6 billion. The accumulated trade surplus for the period from January to September is now 185.7 billion. This was despite a number of safety scares over the month, including recalls of toys and children's cots. Zhang Yansheng, a director at the Institute of International Economic Research in Beijing, said: "China's foreign trade surplus will continue to rise for the foreseeable future. For instance, China's growing high-tech exports are mainly generated by foreign-invested firms, and, according to our study, these investors are unlikely to change their current business model".