Monday, September 11, 2006

Chinese Trade Surplus Soars

Well, I hate to say "See, I told you so", that's not really true. In fact I love saying that!:-)

Anyway, though, the point is that exactly 2 months ago, I wrote that the Chinese trade surplus were likely to increase further as a result of the credit restrictions put in place by the Chinese government. This would reduce investment demand and therefore also imports, while doing nothing to reduce exports.

And so now we read that the August trade surplus hit a new monthly high, at a full $18.8 billion. And look now for the trade surplus to continue to be a lot higher than the same month last year.

The only way the Chinese will be able to reduce one imbalance , excess investments in some sectors, without aggravating another imbalance, the excess current account surplus, is of course to allow the yuan to appreciate a much faster rate than so far. While the pace of yuan appreciation have in fact picked up slightly during the latest month, at 0.5% per month it is still far too slow.


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