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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2757)	3/10/2004 6:18:24 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China's trade deficit will keep a lid on the yuan Mar 11 Phelim Kyne \| Dow Jones Newswires \| Beijing China's trade deficit ballooned to $US7.87 billion ($10.3 billion) in February from $US30 million the previous month, giving the government more ammunition to defend itself against international pressure to revalue the yuan upwards. The monthly deficit was swollen by a rise of 77 per cent year to year in imports to $US42.03 billion, outstripping a 40 per cent increase in exports to $US34.16 billion. "It gives China an excuse to say, 'Don't blame the yuan, now we're running a trade deficit'," DBS Bank economist Chris Leung said. "It isn't intentional, but Premier Wen Jiabao on his maiden trip to the US [in December] already promised the US to buy a lot more, so it's not a surprise to see a trade deficit." China has been under pressure from the US to loosen the de facto yuan peg to the dollar and move towards a more market-oriented foreign-exchange policy. The yuan is fully convertible only on the trade account but is kept in a tight range around 8.277 to the dollar. That peg gives China what critics say is an unfair export advantage as the yuan's value has fallen in tandem with the dollar's during the past year and has contributed to joblessness in US manufacturing. advertisement advertisement The US notched up a record $US124 billion trade deficit with China in 2003, further fuelling accusations of unfair competition. China moved to placate increasingly strident US demands to address that trade imbalance with a series of "buy American" trade missions at the end of 2003 and measures to improve the bilateral trade balance. Policymakers also pared back a tax rebate to exporters introduced after the Asian financial crisis to boost China's trade competitiveness. That rebate was cut by an average of 3 per cent at the start of this year, prompting some expectations of a slowdown in export growth. On the other side of the trade story, China's fast-growing economy continues to require a massive injection of imports for manufacturers. Goldman Sachs economist Hong Liang said buoyant domestic demand and rising fuel and commodity prices were behind the strong import growth in February. A jump in imports was foreshadowed by Guo Shuqing, head of the State Administration of Foreign Exchange, in interviews with state-run media. China's chief foreign-exchange regulator predicted a narrowing in the country's overall trade surplus this year would reduce pressure for a yuan revaluation. But hopes among China's policymakers that a widening trade deficit would defuse pressure for an upward revaluation of the yuan were probably misplaced, Goldman's Ms Liang said. Goldman Sachs has predicted an upward revaluation in the yuan in the first quarter and has consistently been bullish on expectations for a revamp of China's foreign-exchange policy. What isn't likely to diminish in the short to medium term is China's seemingly insatiable demand for raw materials to feed production. China's appetite for imports likely will narrow its trade surplus to less than $US10 billion in 2004, DBS Bank's Mr Leung said. afr.com