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China's trade surplus doubles, passing US$10bn mark

A worker places various household items on a shelf at a supermarket in Beijing yesterday. China's consumer inflation rate slowed last month, with prices rising just 1.3 percent from a year earlier compared with an increase of 1.8 percent in July, while in August last year, inflation was running at 5.3 percent year-on-year, sparking fears the economy was beginning to get out of hand. PHOTO: AFP

China's trade surplus more than doubled last month from a year ago, pushed above the US$10 billion mark by global demand and local producers eyeing overseas markets as an outlet for excess capacity.

"It's very hard for China's exports to fall any time soon," said Chen Xingdong (陳興動), chief China economist with BNP Paribas in Beijing.

"Not only is external demand for Chinese goods still very strong, domestic production capacity is building up to a level that is exceeding domestic demand," he said.

The trade surplus last month was US$10.04 billion, a rise of 122 percent from August 2004, the commerce ministry said on its Web site, citing customs authorities.

It was the third-largest trade surplus ever recorded, customs officials told reporters.

Exports in August rose 32.1 percent from a year earlier to US$67.8 billion, while imports were up 23.4 percent to US$57.8 billion, according to the statistics.

"If only the world remains wedded to free trade, there seems to be nothing to prevent China's export juggernaut from continuing to rumble on," said Andy Xie, a Hong Kong-based economist with Morgan Stanley.

"Free trade is the external factor vital for China's development model," he said. "As long as the global trading system is relatively open, China can expand its market share in global trade with its competitive advantages from low labor costs [to] high savings rates."

In recent months, China's export machine has been helped by booming textile shipments, let loose when a global system of textile quotas was abolished in January.

This was reflected in yesterday's official data, which showed exports in the first eight months of the year increasing 32 percent to US$475.7 billion.

Imports, on the other hand, expanded by a more moderate 14.9 percent to US$415.5 billion, giving a trade surplus of US$60.2 billion, government statistics showed.

China may be a textile super power but high-technology export figures also released Monday show the country's manufacturing industries are gradually moving up the value-added chain.

Chinese companies shipped US$129.5 billion worth of computers, mobile phones and other high-tech items in the first eight months, a rise of 32.9 percent from the same period last year, state-run Xinhua news agency said.

As long as exports soar at such rates, it is likely that economic growth in China will continue to rely heavily on foreign trade and mostly state-sponsored investments in fixed assets such as plant and equipment, analysts said.

According to Morgan Stanley's Xie, China's economy is more than twice as dependent on trade and fixed-asset investment as on average in the world.

This is some cause for concern as it means private consumption plays a much more moderate role in bringing about economic growth.

In one indication that China's consumers are holding on to their money, consumer prices rose just 1.3 percent in August from a year earlier.

This was down from 1.8 percent in July and was the lowest growth rate for a single month since September 2003.

Morgan Stanley warned in a research note yesterday of the risks associated with weak local demand.

China risks a harder economic landing because of the disproportionate role exports play in its economic growth, it said.

"China has a valid top-line growth concern, relying heavily on export surpluses ... and thus is vulnerable to a possible US-centric demand shock," the note said.
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