China's trade surplus cools off, dropping to US$7.57bn

China's September trade surplus unexpectedly sank to the smallest since April as the pace of export growth cooled. The decline may ease pressure on China to adopt a more flexible currency system.

The surplus was US$7.57 billion, down from US$10.6 billion in August, the Beijing-based customs bureau said on its Web site today. Exports rose 25.9 percent from a year earlier last month, down from 33.2 percent growth in August. The rate of increase in imports was 23.5 percent, the same the previous month.

The drop in the trade surplus may quell calls from China's trading partners for the yuan to appreciate more than it has under the trading mechanism adopted in July. US Treasury Secretary John Snow, who started an eight-day visit to China today, said he wants the country to adopt a more flexible currency trading system.

China's government bonds rose. The yield on the 10-year bond fell 6 basis points, or 0.06 percentage point, to 3.08 percent, a seven-month low. The price of the 4.44 percent bond maturing in February 2015 climbed 0.49, or 4.9 yuan per 1,000 yuan face amount, to 110.99. Bond yields move inversely to price.

China's trade surplus for the first nine months of the year was US$68.33 billion, compared with US$3.99 billion in the same period last year. Exports in the first nine months rose 31.3 percent to US$546.42 billion. Imports grew 16 percent to US$478.09 billion.

China on July 21 allowed its currency to appreciate for the first time in a decade, revaluing the yuan by 2.1 percent against the US dollar and replacing the pegged exchange rate with a link to a basket of currencies. Since the revaluation, the yuan has gained less than 0.3 percent against the dollar.

Snow and policy makers including European Central Bank President Jean-Claude Trichet will meet with Chinese Finance Minister Jin Renqing (金人慶) as the Group of 20 nations gather in Grand Epoch City on Oct. 15 and Oct. 16.

China's swelling trade surplus has been leading to rising trade tensions as countries around the world impose quotas and tariffs on Chinese-made goods now flooding their markets. The EU has already imposed quotas on exports of some Chinese textiles and said it would impose five-year tariffs on polyester fabrics from China. Brazil's Trade Ministry said on Sept. 30 it will investigate possible safeguard measures against rising imports of shoes, textiles and toys from China after talks between the two countries to limit shipments failed.

Central bank Governor Zhou Xiaochuan (周小川) said last week that tensions are rising. The solution lay more in boosting domestic consumption rather than changing the value of the yuan, he said.

Surging exports from the world's biggest maker of mobile phones, clothes and steel have been helping to create jobs and sustain growth as government curbs on lending cool growth in investment, which last year accounted for nearly half of China's GDP. The economy expanded by more than 9 percent for the past eight quarters.