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18 January, 2007 Trade Surplus Expanded 74% Last Year |
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China reported that its already huge trade surplus in goods expanded an additional 74% in 2006, underscoring how its imbalance between exports and imports has rapidly turned into one of the country's biggest economic and political challenges.
The trade surplus, equal to a country's exports minus its imports, reached a record $177.47 billion in 2006, compared with $101.88 billion in 2005, according to figures reported by the official Xinhua news agency. China exported nearly a trillion dollars worth of goods for the year-$969.08 billion to be precise-and imported $791.61 billion.
The past two years of massive surpluses have marked a decisive break from the past: In the previous two decades, China's trade balance usually ranged from about 1% to 3% of the economy, in terms of gross domestic product, and the annual surplus had never exceeded $44 billion-until the sudden surge to more than $100 billion in 2005. The trade surplus for 2006 is close to 7% of estimated GDP for the year, up from 4.5% in 2005.
"Those are enormous numbers, and it's clear that China has a macro imbalance," said Jonathan Anderson, an economist with UBS AG.
The imbalance matters to China because those trade surpluses are flooding the domestic banking system with new cash. All that new money can lead to problems: rising inflation, bubbles in stock and property markets and unwise investments by corporations. Chinese policy makers are seeking to contain those potential ill effects without harming the broader economy.
Mr. Anderson and some other economists argue, however, that the source of the problem isn't China's steadily expanding export base but rather the swings in its demand for goods from elsewhere. A surge in investment in heavy industry in the early years of this century gave China the capacity to produce many goods that it previously had to import, while a slowdown in construction in 2005 curbed purchases of many raw materials.
"China is just going through a cyclical wave which has caused imports to come off" or drop, Mr. Anderson said. If investment in industries that compete with imports tails off, and consumer demand picks up, China's trade surplus will return to its historical pattern.
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