China's trade surplus drops again

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China's trade surplus drops again

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China’s trade surplus with the rest of the world narrowed last year as it did in 2009. It fell six percent to the equivalent of 142 billion euros.

However, the politically sensitive trade gap between China and the US widened by 26 percent last year which means Washington will continue to press Beijing to allow its currency to appreciate faster against the dollar.

That is likely to be one of the topics for discussion during a visit to Washington next week by President Hu Jintao.

He will be able to use the trade figures as evidence that the Chinese government is making steady progress in rebalancing its economy toward domestic consumption, cutting reliance on exports and giving the world economy a lift through surging demand for imports.

A smaller trade surplus means less money is flowing into China, making it less urgent for the central bank to mop up the excess cash in the economy that has pushed prices higher.

Chinese exports increased 31.3 percent last year as global demand recovered, but there was a 38.7 percent jump in imports, fuelled by its voracious appetite for oil, iron ore and other commodities.

Apart from farming product such as soy beans, the United States provides few of the commodities sought by China.

However, China’s bilateral surplus with the United States is over-stated by the nature of what is known as the processing trade.

That is when Chinese factories assemble finished products out of intermediate goods produced in other countries. For example, even though a television may have a ‘Made in China’ label on it, the computer chips and plasma screen in it could have been produced in Japan.