Trade surplus may double in March - survey

(Bloomberg)
Updated: 2007-04-09 08:50

China's trade surplus probably almost doubled in March, adding to friction that may prompt the U.S. to file a World Trade Organization complaint as early as this week.

The gap swelled to $20 billion from $11.2 billion a year earlier, according to the median estimate of 18 economists surveyed by Bloomberg News. The figures may be released as early as Monday.

U.S. lawmakers charge that China keeps its currency undervalued, protects piracy and subsidizes products sold overseas. The US Commerce Department last month levied duties on coated paper imports from China and the government may file a WTO complaint over what it calls piracy of copyrighted movies and books, according to four people briefed by the Bush administration.

This "raises the specter of a future escalation of protectionist sentiment and action," said Paul Sheard, global chief economist at Lehman Brothers Holdings Inc. in New York.

U.S. officials have prepared two separate trade cases against China, the people said. One case says that the Asian nation sets too high a value on pirated movie or music disks before prosecuting violators, and another objects to China's restrictions on the sale of foreign books and movies, they said. The people, three industry officials and one lawyer, spoke last week on the condition they not be named.

Imports, Exports

China's commerce ministry called the coated-paper tariffs "unacceptable" and said it reserved the right to take "necessary" action.

China's exports probably gained 27.4 percent in March from a year earlier and imports likely climbed 20 percent, the Bloomberg News survey showed.

"It isn't easy for the U.S. to back down during an election year especially when the trade deficit with China continues to soar," said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong.

The duties on China open a gateway for similar actions in industries such as steel and textiles. China is the world's largest exporter of steel and textiles account for 70 percent of the total trade surplus.

Reserves, Interest Rates

China's trade surplus has created problems at home by pumping cash into the economy, fueling inflation and investment in unneeded factories and real estate.

M2, the broadest measure of money supply in China, likely increased 17 percent in March from a year earlier, the Bloomberg News survey showed.

The government last week ordered banks to set aside more money as reserves for the sixth time in less than a year. Last month the central bank raised interest rates to an eight-year high.

The yuan rose last week, taking its gain to 7.2 percent since a decade-long peg to the U.S. dollar was scrapped in July 2005.

"You can't solve the underlying liquidity problem in China until they stop widespread expectations that the currency will appreciate," said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London. "The only way to do that is to allow it to appreciate and get it over and done with."

Exchange Rate

China will improve the flexibility of the exchange rate this year and let market forces play a bigger role in deciding its value, assistant central bank Governor Yi Gang said April 6.

China has limited yuan gains because a faster appreciation could put companies out of business and result in job losses in the world's most populous country.

Zheng Zhiyi, chairman of the China Chemical Fibers Association, last month estimated the industry would lose 8.8 billion yuan worth of exports this year if the Chinese currency gained 5 percent.



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