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China’s Trade Surplus Swells

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Times Staff Writer

China’s trade surplus with the rest of the world surged to an all-time high of $13 billion last month, another big increase that is likely to heighten economic tensions with the U.S. and other countries.

Analysts said Beijing’s report Monday could exert pressure on Chinese policymakers to strengthen the currency, which is widely viewed as undervalued. Though booming exports have fueled China’s spectacular economic growth, they are now blamed for excessive bank lending and worries about inflation.

China’s trade imbalance has stirred growing resentment among its trading partners, particularly the U.S.

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The trade deficit has also split U.S. politicians and businesses. Larger American companies and business groups tend to stress how China’s exports have saved American consumers money and enabled U.S. corporations to operate with lower overhead.

But smaller businesses and manufacturing workers in the United States have struggled as more production has been moved to China. They and their supporters in Congress have blamed much of the troubles on China’s currency, which they say makes exports from the Asian nation even cheaper in overseas markets.

Last July, China lifted the value of the yuan by 2.1% against the U.S. dollar and said it would allow the yuan to float within a band against a basket of foreign currencies, instead of being pegged rigidly to the dollar. Since that one-time revaluation, the yuan has appreciated an additional 1%. Some U.S. senators have threatened to slap hefty tariffs on Chinese goods unless Beijing further loosens its hold on the yuan, arguing that it is undervalued by as much as 40%.

But any appreciation of the Chinese yuan, analysts said, is likely to be gradual and may not be enough to mollify American lawmakers and groups that have complained about China’s export juggernaut.

In May, China’s exports rose 25%, while its imports were up 22%.

“The trade model has been the Asian growth model for some time, but the Chinese have taken it to the extreme,” said Daniel Melser, who follows China for Moody’s Economy.com in Sydney, Australia.

China’s trade surplus last month was $4 billion more than a year earlier and put it on pace to easily break last year’s record $101-billion surplus. For the first five months of this year, China’s trade surplus totaled $47 billion, compared with $30 billion in the same five-month period in 2005.

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The latest figures suggest that the U.S. trade deficit with China will reach a new high this year as well, after hitting $202 billion in 2005, according to U.S. government data.

A breakdown of May’s shipments by products was not available, but economists said China had been exporting more electronics, machinery and transport equipment -- many of these goods made by U.S. companies or joint ventures with Western corporations.

China’s rising exports have boosted the nation’s imports too, particularly of industrial machinery and raw materials, including cotton and oil. In May, China’s oil imports jumped 19%, part of a trend that has contributed to high crude prices.

Beijing has been loath to bend to outside pressure to revalue its currency, fearful of hurting manufacturers and creating more unemployment that could undermine political stability. But Chinese policymakers also know that overreliance on exports gives them less control over the economy. As a result, Beijing is trying to boost domestic consumption.

The latest report prompted economists to warn of rising inflation in China. Beijing reported that the consumer price index rose by just 1.4% in May, but analysts said the actual figure was higher, in part because government statistics understate housing costs, which have been soaring. Also adding to inflationary pressures are rising domestic energy prices, labor rates and the nation’s money supply, say economists at China International Capital Corp., a state-owned investment bank.

Economists say that Beijing will probably take further steps to curb excessive bank loans and investments, including raising lending rates again and another big revaluation of the yuan.

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But Stephen Green, a senior economist at Standard Chartered Bank in Shanghai, said a big yuan move wasn’t likely. He expects Chinese officials to continue “gradual appreciation.” Green’s forecast for the yuan by year’s end: up 2.5% more.

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