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2008-10-13 | All chapters

China posts record trade surplus
Mure Dickie, Financial Times, 13th October 2008

China's trade surplus hit a record $29.3bn in September as exporters defied forecasts of falling international demand – for the moment, at least.

However, analysts warned that Chinese exports, which rose 21.5 per cent year-on-year last month compared with 21.1 per cent in August, would eventually begin to succumb to the effects of the widening global financial crisis (click to view in depth coverage of global financial crisis from the Financial Times) as it suppresses economic growth in vital markets such as the European Union and US.

“We expect exports growth to trend further down from here, potentially sharply in the coming quarters,” Goldman Sachs economists said in a research note.

The expanding trade surplus – up from the previous record of $28.7bn (€21bn, £16.4bn) in August – will bolster China’s slowing gross domestic product growth rate but could also refocus international attention on Beijing’s effort to support exporters in recent months by slowing the renminbi’s appreciation against the US dollar.

Chinese imports grew 21.3 per cent year-on-year in September, their weakest performance for more than a year. However, Mark Williams, international economist at Capital Economics, warned: “This slowdown can be explained by two factors – falling oil prices and the Olympics-related industrial closures, which continued until September.

“The underlying strength of import growth will not be revealed for a month or two yet.” As part of its drive to ensure an Olympics free of choking air pollution or security breaches, Beijing introduced sweeping restrictions on transport and industry in the Chinese capital and neighbouring areas between July and September – a policy that has complicated interpretation of the summer’s economic data.

It is clear, however, that the focus of government policy has shifted away from combating inflation, which hit a 12-year high of 8.7 per cent in February, and toward supporting growth. Beijing has cut interest rates twice in less than a month, while also moving to boost liquidity by reducing the proportion of deposits that banks must hold in reserve.

Yi Gang, deputy governor of the People’s Bank of China, the central bank, said at the weekend that gross domestic product growth was expected to fall to 10 per cent this year and nine per cent in 2009, while consumer price inflation would fall back to about three per cent next year.

China remains relatively insulated from the current international financial turmoil. Major state banks have been extensively recapitalised in recent years and have only limited international exposure, while the government has been enjoying rapid growth in tax revenues and over $1.8bn in foreign exchange reserves.

However, local investors are already suffering from dramatic falls in stock prices and the slump in urban property markets, increasing vulnerability to any fall in export demand.

* According to China Customs, toy exporters declined in number by 52.7 per cent to 3,507 factories in the first seven months of the year, compared with the same period in 2007, providing backing for persistent anecdotal reports that cost pressures have forced large numbers of toy factories to close.

Source: http://www.ft.com/cms/s/0/55cf7cf0-9913-11dd-9d48-000077b07658.html