China's exports of goods in July exceeded imports by $14.6 billion, edging out the previous record monthly surplus of $14.5 billion in June, the customs administration said. The July surplus, the third consecutive record in as many months, was driven by a 23% increase in exports from a year earlier. That outpaced the 20% increase in China's purchase of products from abroad.

The trade surplus-now on track to reach an unprecedented $150 billion in 2006-has become a focal point for concerns about China's growth, with the U.S. and European Union contending that they can't sustain such a huge imbalance in their trade with Beijing. The surplus also is aggravating domestic jitters that official attempts to rein in China's economy will fail, as the surpluses cause cash to accumulate in the banking system and stimulate investment.

While there is a growing consensus the trade surplus is a problem, it is still far from clear what should be done to fix it.

"China's trade surplus is more a reflection of the continued reallocation of global manufacturing to China, rather than an intention of policy," says Qu Hongbin, an economist with HSBC. While foreign investment is off its peak, Mr. Qu says that unless there is a major decline, "the reality is that China is going to have to learn to live with this trade surplus for the foreseeable future. To use government policy to influence this is very difficult."

An appreciation of China's currency, the yuan, would mean not only that more dollars or euros would be needed to buy the same amount of yuan, but also that each yuan could buy more foreign currency. Because many Chinese exports are made up largely of imported components and raw materials, a rise in the currency could actually lower exporters' costs by strengthening Chinese buying power abroad. Some economists argue that exporters would be able to pass on much or all of those lower costs to customers, offsetting the effect that a stronger yuan would otherwise have on the final foreign-currency price of their goods.

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