China’s swelling monthly trade surplus hit a new high in June of $26.9bn, an 85.5 per cent increase on the same month last year, as local exporters continued to leverage low costs to capture new overseas markets.
The surplus for the first half of the year has now reached $113bn (€82bn, £56bn), more than for the whole of 2005 and equal to about 8 per cent of China’s expected economic output for the first six months of this year.
“This level of trade surplus is unprecedented for China or any other major economy in the world,” said Hong Liang, of Goldman Sachs.
Exports of some products jumped dramatically in the first half, such as steel, which was up by 97 per cent, and containers, up by 55 per cent.
In the case of steel and some other products, exporters have accelerated sales overseas in recent months to beat government cuts to export tax rebates for energy-intensive products.
The rebate cuts, the most important of which came into effect on July 1, are among measures announced by Beijing in recent months to reduce incentives for exporters in the face of rising protectionist sentiment in the US and Europe.
Ports along China’s coast were crammed with trucks last month attempting to deliver goods before the deadline.
“From June 29, a large part of the outer ring road linking Waigaoqiao [Shanghai’s port] was completely blocked by trucks,” said Kuang Tiezhuang, a shipping agent in the city.
Stephen Green, of Standard Chartered bank in Shanghai, said it was too early to judge how much impact the rebate cuts would have on exports in the medium to longer term.
“We will have to wait at least three months to see any effect – and possibly longer since many firms which invested in these sectors will continue to manufacture and export given their capacity is already in place,” he said.
But on top of China’s competitive currency and its role as the last point of assembly for many Asian exports, the growing surplus reflects the capacity of local manufacturers to leverage low costs across a widening range of industrial goods.
Traditional exports such as textiles and electronics assembled in China stayed strong but manufacturers are also moving away from a reliance on cheap, low-margin goods to value-added items offering higher profits.
Sales of television sets overseas fell by 51 per cent in the first six months, while exports of telecommunications equipment and ships have been growing strongly in the last 18 months.
The June surplus was also accentuated by weak imports, which grew by only 14 per cent year-on-year, while exports accelerated by 27 per cent in the same period.
The first half of 2007 has confirmed some trends that emerged last year, notably Europe surpassing the US as China’s largest export market.
China’s growing surplus with the European Union is expected to fuel efforts by some member countries to reimpose curbs on textiles imports when temporary measures run out at the end of the year.
Peter Mandelson, EU trade commissioner, on Tuesday warned that EU-Chinese trade relations were at a “crossroads” and that Europe needed improved access to the expanding Asian market.
Mr Mandelson said pressure would mount for more European protectionism unless there was a genuine two-way street.
“Europe’s trade deficit with China is growing,” he told the European parliament in Strasbourg, adding: “Our export potential is being hampered by barriers in the Chinese market – [which means] an important part of the current trade balance is artificial.”
Mr Mandelson says EU companies need better access to China’s markets and a “sea change” in intellectual property rights protection and copyrights.
In the US, some legislators are calling for laws that would impose punitive tariffs on Chinese imports if Beijing fails to let the renminbi rise faster in value. Last year, the US trade deficit with China amounted to $232.5bn – its biggest with any country.
