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  • Nov 1st, 2005
  • Comments Off on China’s current account surplus rises
China's current account surplus for the first half of the year rose ninefold, topping 8 percent of gross domestic product as booming merchandise exports swamped a deficit in services trade, official figures showed on Monday.

The data underscored the battle Beijing faces to cut its huge balance-of-payments surplus, which is putting persistent upward pressure on the yuan despite July's 2.1 percent revaluation and fuelling trade friction with the United States.

The Commerce Ministry's think-tank said China's trade surplus was on track to triple this year to around $90 billion, with exports surging 26 percent from 2004.

But the report by the Chinese Academy of International Trade and Economic Co-operation, seen on Monday, also said export growth would lose steam next year amid rising trade tensions.

"China's exports have maintained fast growth for four successive years and it's difficult to keep up such high growth due to the limitations of global markets and also trade protectionism," the think-tank said.

The State Administration of Foreign Exchange said China's current account surplus swelled to $67.26 billion, up from $7.47 billion a year earlier and almost as great as the $68.7 billion surplus for all of 2004.

The first-half surplus was equivalent to 8.1 percent of China's first-half GDP, which totalled $832.37 billion. China is under strong pressure from the United States to reduce the surplus by letting the yuan rise faster.

Beijing revalued the currency by 2.1 percent on July 21 and said it would be allowed to float in managed bands. Since then, though, the yuan has risen by just 0.3 percent.

China's surplus is a counterpart of America's huge current account deficit - turning on its head the conventional economic wisdom that capital should flow to poorer countries because they offer higher rates of return as they develop their economies.

Trade in services showed a $3.93 billion deficit, while current transfers were in surplus by $12.09 billion and income payments - including investment returns and expatriates' salaries - showed a surplus of $4.87 billion.

The foreign exchange regulator provided no comparisons.

China's surplus on its capital and financial account fell to $38.30 billion in the first half from $66.80 billion a year earlier.

Huang said the drop could reflect a dip in foreign direct investment and fewer inflows betting on a stronger yuan.

China recorded a $22.475 billion net inflow of foreign direct investment but a $966 million net outflow in securities. Its foreign exchange reserves, the largest stockpile in the world after Japan's, increased by $101 billion in the first six months to $711 billion and hit $769 billion at the end of the third quarter, but the pace of accumulation slowed in September.

Copyright Reuters, 2005


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