China December Trade Surplus Narrows as Exports Cool
By Li Yanping
Jan. 11 (Bloomberg) -- China's trade surplus narrowed for a second month as export growth slowed, signaling that the fastest economic expansion in 13 years may have peaked.
The surplus for December shrank to $22.7 billion from $26.2 billion in November, the Chinese customs bureau said in a statement on its Web site today, lower than the $24.4 billion median estimate of economists surveyed by Bloomberg News.
Export growth cooled to 21.7 percent last month from 22.8 percent, indicating that recent yuan gains, the slowing global expansion and cuts to export-tax rebates on polluting industries are beginning to bite. For 2007, the trade gap surged 48 percent to a record $262.2 billion, giving U.S. and European officials ammunition to keep calling for faster appreciation of the yuan.
``Slower export growth may help China achieve a soft landing,'' said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing. ``China's economic expansion may have peaked last year.''
After the figures were released, the yuan remained near the highest since a dollar peg was scrapped in 2005. The currency was 0.1 percent stronger at 7.2644 per dollar as of 1 p.m. in Shanghai, heading for its fifth weekly gain.
The yuan advanced 7 percent against the U.S. dollar in 2007, twice as fast as in 2006, partly because the central bank boosted interest rates to a nine-year high.
U.S. Treasury Secretary Henry Paulson and European Central Bank President Jean-Claude Trichet led teams to China over the past two months pressing China to let the yuan rise further and ease trade tensions.
``Pressure on China to let its currency appreciate faster won't stop because the surplus is still getting bigger,'' said Xing Zhiqiang, an economist at China International Capital Corp. in Beijing. Xing expects the yuan to rise 10 percent in 2008.
China's economy expanded 11.5 percent in 2007, the fastest pace in 13 years, according to government forecasts. Wang estimates it will grow between 8 percent and 10 percent over the next three to five years.
``Government measures to curb export growth of energy- consuming and polluting products and to lower import tariffs have effectively curbed further widening of the trade surplus,'' the customs bureau said in a statement on its Web site today. ``Policy adjustments achieved initial results.''
China reduced export-tax incentives twice last year on products including pig iron and nickel. New tax rules to slow exports of some other steel products that took effect on Jan. 1 may cool shipment growth further. Steel-product exports fell 14 percent in December from a year earlier.
The tax measures were, in part, a response to pressure from trading partners. The European Union in November threatened to introduce tariffs to shield producers such as ArcelorMittal.
``Exports will decline further this year as higher taxes make Chinese prices less competitive,'' Liu Yuanrui and Shao Wenzhong, analysts at Changjiang Securities Co., wrote in a report today.
Imports climbed 25.7 percent in December to $91.7 billion, maintaining the previous month's 25.3 percent pace of expansion.
Government policy makers last month named inflation and the risk that the economy will overheat as its two main concerns for 2008 and said the People's Bank of China would pursue a ``tight monetary policy.''
Made in China
The policy is designed to slow the rate at which cash has been funneled into building thousands of factories, many of which may become idle should export demand dwindle too fast.
Policy makers are trying to prevent the economy from overheating in the face of risks that global growth will stall and slash demand for Chinese-made goods.
``If exports slow in China, you'll see a lot of overcapacity, you'll see margins collapse, you'll see deflation and you'll see a lot of non-performing loans,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.
A 1 percentage point slowdown in the U.S. would trim China's export growth by 4 percentage points and reduce gross domestic product by 0.5 percentage point, according to Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.
Morgan Stanley forecast last month that growth in China's shipments abroad may slow to 16 percent in 2008. Imports will increase 18 percent, the investment bank predicted.
``A U.S. slowdown will hit China's other export markets too -- and that we think will likely have a knock-on impact upon China's own investment growth,'' said Stephen Green, an economist at Standard Chartered Plc in Hong Kong.