China Surplus May Exceed $20 Billion, Stoking Yuan Tension

China may tomorrow say that its trade surplus topped $20 billion for a third month in August in a report that risks stoking American lawmakers’ calls for protection from Chinese imports.

Exports probably exceeded imports by $26.9 billion, compared with $15.7 billion in the same month a year earlier, according to the median of 34 forecasts in a Bloomberg News survey. Shipments abroad gained 35 percent and imports grew 27.5 percent, according to the survey.

The U.S. House Ways and Means Committee will discuss next week China’s currency policy after Premier Wen Jiabao’s government limited the yuan’s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections looming, legislators may push a bill letting companies seek tariffs for compensation for an undervalued yuan.

“Trade tensions may intensify, especially as the U.S. faces a slowing recovery, a high jobless rate and mid-term elections,” said Sun Chi, a Hong Kong-based economist at Nomura Holdings Inc. who previously worked for the U.S. Treasury in Beijing.

China’s foreign ministry said that external pressure won’t dictate the nation’s currency policy as Larry Summers, President Barack Obama’s top economic adviser, visited Beijing this week.

Yuan’s Movement

Non-deliverable yuan forwards indicate that gains against the dollar may be limited to about 1.2 percent in the next 12 months. The currency traded at 6.7867 as of 1:42 p.m. in Shanghai, compared with the 6.83 peg to the dollar authorities maintained from July 2008 to June 2010.

“Frankly they haven’t let the currency move very much so far,” U.S. Treasury Secretary Timothy F. Geithner said yesterday in an interview on Bloomberg Television. “They know they’re just at the beginning of that process and I think we’d like to see them move more quickly.”

U.S. lawmakers including Senator Charles Schumer, a New York Democrat, have pressed the Obama administration to demand a speedier appreciation of the yuan. The house committee will discuss whether China has made “material progress” on the issue and what action Congress and the administration may need to take to address the nation’s exchange-rate policy.

“We doubt that China is going to bend to U.S. pressure on the currency -- it is not in its interest to do so -- so we expect relations between Beijing and Washington to be strained over the next few months at least,” Carl Weinberg, the chief economist of High Frequency Economics in Valhalla, New York, wrote in a Sept. 7 note.

Annual Surplus

Chinese Commerce Minister Chen Deming said yesterday that commodity price declines and continued U.S. restrictions on exports have contributed to a larger-than-expected surplus. He said he hopes the annual total is less than last year’s $196 billion. The August trade gap will compare with excesses of $28.7 billion in July and $20 billion in June.

“It’s not yet certain that the trade surplus will continue to widen because imports may rebound as the government boosts investment to sustain economic growth and companies restock as soon as their business outlook improves,” said Nomura’s Sun.

Other Chinese data due in coming days may show industrial- output growth weakened in August, while inflation accelerated to 3.5 percent, the fastest pace in almost two years, partly because of rising food costs.

An interest-rate increase is unlikely “because top policy makers are concerned about growth and more biased toward thinking the risk of high inflation is limited,” Goldman Sachs Group Inc. economists said in a note.

Production Gain

Industrial production climbed at an annual 13 percent rate, the least in a year after excluding seasonal distortions in January and February, the survey of economists indicated.

Output growth may slow to a 10 percent pace for the second half as a whole as the government chases energy-efficiency targets and cools the property market, the Ministry of Industry and Information Technology said Sept. 7. The ministry also cited risks to export demand and a limit to growth due to comparisons with higher year-earlier bases.

In China’s north, Hebei, the nation’s largest steelmaking province, is demanding that producers such as Tangshan Iron & Steel Group and Shougang Corp. curb output as part of efforts to meet government energy-savings targets, according to the Tangshan city government’s website.

Bank Lending

Banks may have extended 500 billion yuan ($74 billion) of new loans in August, less than July’s 533 billion yuan, with M2, the broadest measure of money supply, expanding 17.5 percent, economists’ median forecasts showed.

Policy makers have sought to restrict lending growth this year after a record expansion in 2009 risked inflating asset bubbles. Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a statement yesterday that the banking system has weak risk management and is exposed to potential systemic risks that can’t be ignored.

China’s economic growth slowed to 10.3 percent in the second quarter from an 11.9 percent pace in the first three months of this year as the government trimmed credit growth from last year’s record 9.59 trillion yuan and tightened requirements for mortgage loans to rein in property prices.

Producer prices probably rose 4.5 percent in August from a year earlier, retail sales gained 18 percent and urban fixed- asset investment expanded 24.6 percent in the first eight months, according to the survey.

--Li Yanping, with assistance from Jay Wang in Singapore and Rebecca Christie and Peter Cook in Washington. Editors: Paul Panckhurst, Chris Anstey.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.