Aug. 10 (Bloomberg) -- China had a record trade surplus for the third straight month in July, adding to pressure on the government to let the yuan gain faster.

The surplus widened to $14.6 billion from $14.5 billion in June, the Beijing-based customs bureau said today on its Web site. Exports jumped 22.6 percent and imports increased 19.7 percent, the statement said.

China has pledged to curb a ballooning trade surplus that's left the financial system flush with cash which is being spent building factories and apartments that the country may not need. With the gap set to top last year's record $102 billion this year, Premier Wen Jiabao may be pressed to let the yuan rise faster to slow the inflow of money and avoid trade sanctions from the U.S.

``The large and rising trade surplus in China confirms our view that the yuan is significantly undervalued, and policies that do not address it head on are unlikely to resolve the macro challenges posed by the undervalued currency,'' said Liang Hong, an economist at Goldman Sachs Group Inc. in Hong Kong.

July's figure took the trade surplus for the first seven months to $76 billion, up 51 percent from the year-earlier period. Economists at UBS AG estimate the surplus for the year will swell to $138.4 billion after tripling in 2005.

The central bank said yesterday the government will boost imports, loosen controls on outflows of capital and make the yuan more flexible to help curb the gap. Wen last month called imbalances in international payments one of China's five top economic problems.

Yuan Reference Rate

China will ``adjust the policy bias'' that encourages exports and discourages imports, the central bank said in its second- quarter monetary report. It added that the exchange rate alone cannot resolve imbalances in China's trade and capital accounts.

The central bank set the yuan's reference rate at 7.9688 against the U.S. dollar today, an all-time high. The yuan was trading at 7.9672 per dollar at 10.50 a.m., according to the Web site of the China Foreign Exchange Trade System in Shanghai.

The yuan has risen 1.7 percent since China ended a peg to the dollar on July 21, 2005, and said it would allow the currency to trade as much as 0.3 percent either side of a daily fixing rate. It has never moved that far in one day.

Faster currency gains would do little to help ease the trade surplus in the short term, said Paul Cavey, China economist at Macquarie Securities in Hong Kong.

`Stuck With the Problem'

``There would be a lagging effect of at least six to 12 months for the currency to have any effect and in the meantime they are still stuck with the same problem,'' he said.

Imports rose to $65.7 billion in July, after an 18.9 percent increase in June. Increases in imports averaged 22 percent a month in the first half, up from 14 percent in the year-earlier period, when government investment curbs crimped demand.

Wen has cut import duties to comply with World Trade Organization commitments and raised taxes on some export goods. The government has also raised minimum wages and boosted spending on health care, welfare and education to bolster demand for imported products.

Exports from China, the world's biggest producer of laptop computers and textiles, grew to $80.3 billion, driven by shipments of electronics by companies including ZTE Corp. and Hon Hai Precision Industry Co.

Clothing Tariffs

ZTE, China's biggest publicly listed telephone-equipment maker, said last month its overseas sales surged as much as 50 percent in the first half from a year earlier.

Still, July exports rose at their slowest pace in five months after the U.S. and Europe, the biggest markets for Chinese-made goods, imposed tariffs and quotas on clothing and footwear produced in China.

``China has been grabbing market share from other countries in its main export markets,'' said Kent Yau, deputy head of research at Core Pacific-Yamaichi International in Hong Kong. ``But as time goes by it becomes more difficult to take an even bigger share, and that's being reflected in this slowdown.''

July's trade surplus, which compares with a $10.6 billion gap in the same month last year, beat the $14.3 billion median forecast of 21 economists in a Bloomberg News survey.

The gap may widen to $146 billion this year as companies increase exports amid a domestic supply glut and more overseas investors set up factories, the State Information Center's forecasting department said in a report published by the Shanghai Securities News on Aug. 9.

U.S. Relations

``The government has been trying hard to balance the external account but it hasn't been very successful,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``The pressure both internationally and domestically will rise'' for faster appreciation of the yuan.

The U.S. in particular has been urging China to allow the yuan to rise faster to stem a burgeoning trade gap between the two nations. The U.S. deficit with China swelled almost a quarter to a record $202 billion last year, according to the U.S. government.

As China's trade surplus kept widening, a growing number of economists have been advocating faster yuan gains as a way of making the economy less reliant on exports and investment. China's economy grew 11.3 percent in the second quarter, the fastest pace in more than a decade, and investment accelerated in June.

China should ``rebalance demand from an excessive level of investment to a more sustainable level of investment'' and ``more domestic consumption,'' Rodrigo de Rato, managing director of the International Monetary Fund, said in Tokyo on Aug. 3. ``Letting the exchange operate more fully will help the Chinese economy evolve to a more sustainable pattern of growth.''

To contact the reporter on this story: Nerys Avery at Navery1@bloomberg.net

Last Updated: August 9, 2006 23:12 EDT