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China Reports Huge Trade Surplus With U.S. Signaling More Currency Tensions

Currencies / China Currency Yuan Aug 12, 2010 - 06:27 AM GMT

By: Pravda

Currencies

Despite forecasts of a cooling demand for Chinese products in the USA and EU, Beijing has reported a huge trade surplus figure after exports soared to 145.5 billion USD in July, a year-on-year increase of 38.1%. In the pipeline: tensions between Washington and Beijing over the valuation of the Renmimbi?


The People’s Republic of China has reported a record trade surplus of 28.73 billion USD for July, with exports growing by 38.1% and imports reducing from 34.1% in June to 22.7% in July, an increase of 22.7% over the twelve months from July 2009. The question is now whether Washington will exert pressure on Beijing to revalue the Renmimbi (China’s currency) and provoke the reply that China’s trade surplus is not the result of its exchange rate policy.

The Chinese economy is staggeringly resilient and awesomely powerful, as per the new trade figures released. From the 1980s onwards, the PR China has posted an average GDP growth rate of around 8% per annum, while over the last three decades the economy has grown tenfold, translated in concrete terms into 3.42 trillion USD.

While there is a vast difference between the global GDP and the GDP per capita (the Purchasing Power Parity GDP of the PR China is second only to that of the USA, while Purchasing Power Parity per capita is some 2,000 USD, or 107th out of 179 countries).

The latest figures contradict previous forecasts of a cooling in demand in the main markets for Chinese products, namely the USA and European Union.

China’s vast economic growth-rate is the result of the economic reforms which were begun in the 1970s and 1980s. These started with a shifting of the sectorial balance from the tertiary to the secondary sector as farming gave way to manufacturing, continued with a steady liberalization of prices and followed with a policy of fiscal decentralization.

State-owned businesses started to gain more autonomy in their spheres of actions and began to behave like public-private ventures and government regulation was altered, again decentralizing and affording more manoeuvrability at the regional and local level.

These policies in turn created internal demand (a fundamental part of Michael Porters’ theory of competitiveness of nations) and gave rise to the appearance of private companies in the services and light manufacturing areas.

As a result, the banking system was also deregulated at the national level and was able to adapt, producing products for the local markets, strengthening the economy and creating the conditions for a steady growth of the stock market, while an opening of the economy gave rise to foreign direct investment.

The People’s Republic of China is a very good example of how a transition can be made between economic systems without the hiccoughs which accompanied other countries during the tumultuous decade of the 1990s.

Timothy BANCROFT-HINCHEY

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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