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China Trade Surplus Caps Biggest Quarter Since 2008

Wen Jiabao, China's premier. Photographer: Jock Fistick/Bloomberg

Oct. 13 (Bloomberg) -- China, the world’s biggest exporter, posted a $16.9 billion trade surplus for September, capping the largest quarterly excess since the financial crisis in 2008 as pressure mounts for a stronger yuan.

Exports rose 25.1 percent from a year earlier and imports climbed 24.1 percent, the customs bureau said on its website today. The third-quarter trade gap was $65.6 billion, the most since a $114 billion surplus in the final three months of 2008.

U.S. Treasury Secretary Timothy F. Geithner yesterday suggested that China’s yuan policy is distorting the global currency system by forcing other emerging market countries to intervene. Yuan forwards rose toward a two-year high after the trade data and minutes showing that Federal Reserve policy makers were prepared to ease monetary policy last month, a move that could increase money flows to Asia.

Today’s numbers are “unlikely to do much to reduce international pressure on China to move faster on the currency,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “Beijing has plenty of scope to allow appreciation in the months ahead.”

The September surplus compares with the $17.8 billion median estimate of 24 economists surveyed by Bloomberg News. In August, the excess was $20 billion.

Yuan Climbs

The yuan strengthened 0.1 percent to 6.6681 per dollar as of 11:46 a.m. local time in Shanghai and non-deliverable forwards rose 0.2 percent to 6.4496, suggesting appreciation of more than 3 percent in the next year.

European and U.S. officials argue that a stronger Chinese currency would aid the global recovery by stoking demand within the nation and reducing international economic imbalances. China’s gross domestic product expanded 10.3 percent in the second quarter as the nation replaced Japan as the world’s second-biggest economy.

“What’s happening is, as China holds its currency down, their currencies are moving up,” Geithner said in an interview on “Charlie Rose” scheduled to air yesterday on PBS and today on Bloomberg Television, referring to other emerging markets’ exchange rates. Other nations “are having to work very hard to make sure they’re not at an unfair disadvantage with China.”

Chinese officials can point to improvements in the trade balance. Imports rose to a record value of $128.1 billion, limiting the surplus to the smallest in five months.

Still, the trade gap was 31 percent bigger than a year earlier, a comparison with a previously published figure showed.

Narrowing Surplus

“China’s surplus may gradually narrow as the nation’s sustained growth momentum boosts imports and external demand wanes amid a slowdown in developed economies,” said Dariusz Kowalczyk, a Hong Kong-based economist and strategist at Credit Agricole, before today’s release. Kowalczyk said smaller surpluses as a proportion of gross domestic product imply slower gains in the yuan.

“China’s foreign trade is notably better than pre-crisis levels,” the customs bureau said in today’s statement.

September export growth was less than the median estimate in a Bloomberg News survey for a 26 percent gain, and compared with a 34.4 percent jump in August. Bank of America-Merrill Lynch said that a slowdown in year-on-year trade growth was because of a high base for comparison.

Import growth was close to the median forecast for a 25 percent advance following a 35.2 percent increase in August.

U.S. Legislation

The U.S. Senate will consider legislation that would allow duties to be imposed on Chinese imports because of the nation’s failure to allow bigger currency gains, according to Senator Charles Schumer of New York. Companies such as Caterpillar Inc., Wal-Mart Stores Inc. and Citigroup Inc., have warned that the measure may lead to retaliation.

The yuan has gained more than 2 percent since the government in June stopped pegging the currency to the greenback after almost two years.

Debate about competitive devaluations dominated International Monetary Fund meetings last week. Geithner renewed his call for China to let its currency rise and Luxembourg Prime Minister Jean-Claude Juncker, who chairs a panel of euro-area finance ministers, said the yuan is “more than undervalued.”

Chinese central bank Governor Zhou Xiaochuan said his nation needs to avoid the “shock therapy” of excessive yuan appreciation and “very fast” gains probably wouldn’t end global economic imbalances. Appreciation of 20 percent to 40 percent would exacerbate Chinese unemployment and cause social upheaval, according to Premier Wen.

Bull Market

China’s economy has rebounded from the global recession, with the Shanghai Composite Index yesterday entering a so-called bull market, rising 20 percent from a July low. The measure remains down for 2010.

Investors and companies are paying a record premium to obtain yuan in Hong Kong’s offshore market, taking advantage of looser restrictions to stock up on a currency appreciating at the fastest pace in five years.

The yuan in Hong Kong closed yesterday at 6.5400 per dollar, 2 percent more than the 6.6734 spot rate in Shanghai, according to data compiled by Bloomberg.

The world “has to be patient” at the pace of yuan gains, Michael Pettis, a finance professor at Peking University, wrote in a commentary published by Bloomberg News yesterday.

“Ideally, China should spend the next eight to 10 years slowly raising the value of the yuan while boosting wages and interest rates, and limiting credit growth,” Pettis said. “It can’t do any of these things too quickly without undermining growth and causing unemployment to surge.”

To contact the Bloomberg News staff on this story: Li Yanping in Beijing at

To contact the editor responsible for this story: Chris Anstey at

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