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China must cool exports to ease trade frictions, minister says
2007-01-16
China will significantly cool exports this year as it makes slashing its record trade surplus one of its most urgent tasks, Commerce Minister Bo Xilai has said. "Cutting the huge trade surplus is the priority task for 2007," the China Daily quoted Bo as saying. "The yawning surplus with the United States and the European Union has strained China's foreign trade environment, triggering more frequent trade friction." He warned that if steps were not taken to rein in China's massive trade surplus -- a record 177 billion dollars last year -- it would widen to 300 billion dollars, turning "an economic problem into a political one". A large trade surplus was not good for China's sustained economic growth and plans were afoot to "decisively" reduce exports of high-energy-consuming and low-value-added goods, Bo said. Last year China sought to reduce the problem through tax and industrial policies in goods processing, a sector seen as low in value-added and blamed for about half of the trade surplus, the newspaper said. To boost imports the government will relax restrictions and announce taxation and financial incentives, Bo said, without elaborating. "We will largely increase imports which have high demand in China," he said. China's trade surplus has been a consistent bone of contention with its biggest trading partners, particularly the United States, which has repeatedly warned that Beijing must take tougher action to reverse the trend. Critics say its currency, the yuan, is being kept drastically undervalued, boosting Chinese exporters' competitiveness because they can sell their products overseas more cheaply. The yuan, which is managed against an undisclosed basket of currencies and is allowed to move 0.3 percent each day against the dollar, has appreciated at a slightly faster pace in recent months. The yuan rose 3.2 percent against the dollar last year but lawmakers in Washington claim the currency is strengthening too slowly, given the estimated undervaluation of as much as 40 percent. In comments published Monday, China's commerce ministry said it expected the yuan to rise four to five percent against the dollar this year, but underscored the wisdom of a slow and independent approach. "A gradual appreciation involves little risks and the greatest efficiency," the report said. The ministry also said that despite the substantial pressure on the yuan to rise, monetary policy must not be compromised by concerns over the currency and its management. "We need to send a clear message to the world that we are firmly safeguarding the independence of our monetary policy and must not make it appendant to exchange rate policy," it said. It noted, however, that currency appreciation was helpful in reducing the country's heavy reliance on exports but domestic demand needed boosting as an undervalued yuan was only one factor to blame for China's economic imbalances. Huge earnings by exporters, along with speculative money flows, pushed China's forex reserves over the one trillion-dollars mark at the end of 2006, making them the world's largest and inter-locking monetary and forex policy. The fast accumulation of forex reserves has forced the central bank to take on a heavy sterilisation program to absorb the new money, which in turn boosts liquidity for bank lending just when regulators are trying to slow over-active investment.
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