China September trade weakens, surplus $16.9B

[October 13, 2010]  BEIJING (AP) -- China's September trade surplus stayed high at $16.9 billion amid pressure from Washington and others to ease currency controls they blame for job losses amid a slowing global recovery.

Export and import growth both weakened, hurt by slower global demand and a moderation in the rapid expansion of China's economy, the world's second-largest, data showed Wednesday.

The trade gap narrowed from August's $20 billion level but might reinforce demands by American lawmakers for Beijing to ease exchange rate controls they say give China's exporters an unfair price advantage and are costing U.S. jobs.

"The trade surplus will stay large" for the rest of this year, said Sun Fanghong, a Pingan Securities economist. "This will be a reason for the United States to pressure China over its exchange rate."

Export growth fell to 25.1 percent from August's 34.4 percent as Europe's financial crisis helped to cool global demand. Import growth also fell to 24.1 percent from August's 35.2 percent, a negative sign for economies that look to relatively robust China to drive sales of their goods.

"We'll probably continue to see more slowdown in trade because the global recovery is facing difficulties," said Citigroup economist Ken Peng. Still, he said, "the trade surplus could hang onto current levels" in coming months.

Exports totaled $144.9 billion while imports were $128.1 billion, according to China's customs agency.

Beijing also is likely to face demands for action on currency at next month's meeting in South Korea of the Group of 20 major economies. A Chinese official said Wednesday the meeting should focus on the global recovery and argued that criticizing Beijing over currency would be divisive.

Also Wednesday, China's central bank reported its foreign reserves soared to $2.65 trillion at the end of September. That was up nearly $200 billion from June and could add to currency pressure.

The rapid growth of the reserves is a side effect of Beijing's effort to manage its exchange rate. To prevent the yuan from rising too quickly, the central bank buys most of the dollars and other foreign currency that are flooding into the economy and stockpiles them abroad in U.S. Treasury bills and other foreign assets.

Beijing promised more exchange rate flexibility in June. It has tried to defuse pressure in Washington by allowing the yuan to rise faster in recent weeks but it has gained only 2.4 percent against the dollar since the June pledge.

Pressure from American lawmakers for action has mounted amid signs the U.S. recovery is weakening ahead of November elections. The House of Representatives passed legislation Sept. 30 to allow Washington to sanction governments that manipulate their currency for trade advantages and the Senate is due to take up the measure after the elections.

"It's a very real possibility that the currency bill would pass," said U.S. Senator Max Baucus, chairman of the Senate Finance Committee, who was in Beijing for talks with Chinese officials.

"My job is to tell the Chinese government how serious it is," Baucus said. "They said they understood."

Beijing has insisted it will set the pace of change, and Premier Wen Jiabao warned in a speech in New York in September that too fast a rise could bankrupt Chinese companies and wipe out jobs.

"The more pressure the United States tries to put on China, the more resistant China will become," said Sun.

On Wednesday, a Chinese official argued the G-20 meeting should focus on the global recovery and said criticizing China would "show a divided G-20" to the world.

"The G-20 should focus on what is required by the global economic recovery ... certainly not on any particular currency of any particular country," Vice Foreign Minister Cui Tiankai told reporters in Seoul.

Beijing and Washington have accused each other of protectionism despite pledges to avoid measures that economists say would slow the global recovery. The governments are arguing over access to each other's markets for tires, steel, chicken and other goods.

China rebounded quickly from the global slump, helping to boost demand for iron ore and other materials from its Asian neighbors, Australia, Brazil and other economies. But growth is expected to slow to about 9.5 percent in the July-September quarter from 10.3 percent the previous quarter.

Demand for steel and some other materials is falling sharply as the government reins in a building boom triggered by its stimulus spending.

The rising yuan and shrinking trade surplus might help to defuse trade tensions, said Citigroup's Peng.

"It will be more difficult for the U.S. political sphere to reach a consensus to pass this legislation," he said. "I'm becoming more optimistic we can move on without a currency war."

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Online:

China General Administration of Customs:
http://www.customs.gov.cn/

[Associated Press; By JOE McDONALD]

Associated Press writer Chi-chi Zhang, AP Business Writer Kelly Olsen in Seoul and AP researcher Zhao Liang contributed.

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