China Trade Surplus May Be Gone in Two Years, Central Bank Adviser Li Says

China’s trade surplus may disappear within two years as domestic demand rises, making the yuan rate less of an issue, an adviser to the nation’s central bank said.

“In one to two years, our trade surplus will be zero,” the adviser, Li Daokui, said in an interview in Beijing today. “It’s possible for the renminbi to face depreciation pressure. If that time comes, let the market decide its fluctuation,” he said, referring to the Chinese currency.

Policy makers in the world’s second-largest economy have pledged to adjust the nation’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008. Unbalanced trade flows have triggered calls from U.S. and other Group of 20 nations for China to allow its currency to trade more flexibly.

President Barack Obama said on Nov. 13 that “enough’s enough” on what the U.S. views as a too-slow strengthening in the yuan, saying that Chinese exporters “like the system the way it is.”

Still, exchange rates have become a “much smaller” issue over the years, Li said at a forum today. China’s trade surplus may account for less than 1.6 percent of gross domestic product this year, he said.

“The marketplace will eventually provide a good answer to all these political pressures,” Li said. “I often call upon my countrymen not to be irritated, not to become angry to the international pressure of exchange rate appreciation. That’s daily politics.”

Yuan Rate

The yuan fell 0.16 percent to 6.3528 per dollar today. China’s currency has appreciated 2.3 percent against the dollar in the past six months, according to Bloomberg Data.

Standard Chartered has scaled back its projections for the yuan against the dollar this week, predicting the currency will appreciate 0.6 percent each quarter in the first half of 2012, lower than the 1 percent quarterly advance the company previously expected.

China’s inflation rate has dropped from a three-year high of 6.5 percent in July to 5.5 percent last month, government data show. The economy expanded 9.1 percent in the third quarter, the least since 2009, amid the government’s campaign to cool consumer and property prices.

“Inflation will likely ease to 2.8 percent next year,” Li said. That may help deposit rates rise above the inflation rate, in line with the central bank’s goal, he said.

Economic Growth

China will probably invest in public works projects if there’s a risk of the nation’s growth falling below 6 percent, Li said. China’s economy will grow 9 percent next year, according to an International Monetary Fund projection in September.

The central bank this week said it can’t loosen control over prices and reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation for price stability is not yet solid,” the bank said in its third-quarter monetary policy report.

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net

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