Fortune: China report sees $150B trade surplus

Government says foreign direct investment will be catalyst to export, import growth, according to newspapers.
November 11 2006: 8:04 AM EST



BEIJING (Reuters) -- China's annual trade surplus is set to reach $150 billion this year, bursting past last year's record $109.8 billion as the country's exports continue to surge, a government report said.

The report by the Commerce Ministry said exports were likely to hit $960 billion by the end of 2006, a 26 percent increase on 2005. Imports were likely to reach $810 billion, a jump of 22 percent, the China Daily said Saturday, citing the report.

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"Foreign direct investment will continue spurring import and export growth," said the International Business Daily, the ministry's official paper, citing the report.

"The trade friction outlook confronting China is increasingly serious," it said, warning of rising international complaints about China's cheap products.

But Beijing will continue recording trade surpluses for years to come, not due to design but to international forces, an expert from a government thinktank that co-wrote the report said.

"China is not in pursuit of a trade surplus. On the contrary, the continuous growth in trade surplus has become one of the major concerns of the government," Li Yushi of the Chinese Academy of International Trade and Economic Cooperation told the China Daily.

The report forecast that China's total trade would reach $1.77 trillion in 2006, a rise of 24.5 percent on 2005.

In 2007, trade growth would probably slow to 15 percent, still allowing the Asian export giant's trade to hit $2 trillion, it said, noting that high-tech exports, such as computers, were a growing part of China's exports.

This week China posted a record trade surplus of $23.8 billion for October, raising the prospect of greater pressure on Beijing to let the yuan rise faster so its exports become more expensive and imports relatively cheaper.

In July 2005 China cut loose its yuan from a dollar peg to float within a tightly managed band.

But at about 7.8 per dollar, the currency has gained only 3.1 percent in the interim and remains undervalued in the eyes of many economists when judged by China's trade surplus and record $1 trillion stash of foreign reserves.

Li said the transfer of much multinational manufacturing to China was to blame for the mounting surplus. The report predicted that Beijing would absorb $60 billion of foreign direct investment in 2006, about the same level as last year.