During the month of July, China had yet another very impressive trade surplus, showing a 67 percent jump year over year to $24.4 billion. The country has been under serious scrutiny regarding its currency controls, but still denies that it is trying to manipulate a surplus. July's figures are sure to spark more debate over what to do with the Chinese trade situation.
Last year America had a trade deficit of $232.5 billion with China, its largest one-year deficit with one country in history. This year analysts are predicting that number to increase.
While it is true that the Chinese government has been trying to curb the difference by adding exports on some of its goods and taking back rebates on taxes of certain goods, the impact of these efforts has been negated by lower import levels of many high dollar items. The country has been undergoing massive growth over the past several years, and the country has been trying to cool the country's growth by slowing down construction, which has lowered its import levels.
It just goes to show that even with all the recent bad press over harmful Chinese imports, Americans are still gobbling up cheap Chinese goods as fast as they can.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
9-03-2007 @ 1:47PM
Jamie said...
Over the past few years, the rising trade surplus means that the People’s Bank has been a continual net buyer, accumulating nearly $30 billion a month in official foreign reserves for a cumulative total of $1.2 trillion as of March 2007. This fact has led to criticism
that China consciously set the yuan peg at a level that makes exports hypercompetitive and thus automatically generate enormous trade surpluses. But this doesn’t necessarily follow. Under a fixed exchange-rate regime, central banks essentially commit to live with what the market delivers to their doorstep, and in a technical sense the recent flood of
dollars is simply what the market has brought to China.
In fact, when looking at policy intent it helps to keep two points firmly in mind. First, when the government first initiated the peg in 1997 it wasn’t to keep the yuan from rising. Rather, it was to keep the currency from collapsing. The end of the Chinese bubble in 1995-96 left the economy with a huge burden of bad debts at home and abroad: Profits were disappearing and real growth had probably slowed to low single-digit levels. Against this backdrop, the onset of the Asian financial crisis convinced many investors that the yuan would be the next domino to fall, and short-term capital began to flow out of the economy at an unprecedented pace. The authorities’ decision to institute a de facto peg against the dollar was explicitly billed as a commitment not to devalue the yuan. As late as 2003, when then Premier Zhu Rongji officially retired from government service, he considered holding the yuan peg to be one of his crowning achievements, and one of China’s biggest contributions to global stability.
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