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China's trade surplus slips, but yuan seen stable

BEIJING: China's trade surplus narrowed 23 percent year-on-year in January and February due to surging imports, but the yuan is expected to remain stable as the economy recovers, analysts said on Monday.

"The devaluation pressure on the renminbi (yuan) has eased greatly," said Song Guoqing, chief economist at the China Securities Exchange Executive Council, an independent think-tank.

"There is the possibility for starting the reform to widen the yuan's trading bands this year," he said.

Foreign Trade Minister Shi Guangsheng told a news conference on Monday China posted a trade surplus of $2.89 billion in January and February, down from $3.77 billion in the same period of last year.

Exports surged a year-on-year 41.2 percent in the first two months of 2000 to $31.57 billion, while imports soared 54.2 percent to $28.69 billion, Shi said.

"The trade situation this year will probably be better than last year," he said, adding that the export surge was fuelled partly by a relatively low base a year earlier.

China's exports staged a strong recovery in the second half of 1999 after dipping in the first half, resulting a whole-year trade surplus of $30 billion against $43.6 billion in 1998.

STONGER ECONOMY UNDERPINS THE YUAN

"Despite the falling trade surplus, an improvement in the economy is expected to reduce expectations that the yuan might be devalued," said Gao Huiqing, an economist at the State Information Centre.

"Rapidly growing imports and exports indicate that both domestic and overseas demands are reviving."

Shi said the government would continue to implement measures to promote exports this year but did not give further details. It has been giving tax rebates on many exports.

"Basically, the renminbi is expected to remain stable this year," Gao said.

Chinese officials, citing a solid net inflow of foreign exchange and the country's huge foreign exchange reserves of $154.7 billion at the end of last year, have reaffirmed a pledge to keep the yuan stable.

Last month, a central bank spokesman said China was considering widening the trading band for the yuan, now very narrow. Some economists said that could lead to an appreciation of the currency.

Analysts have forecast strong exports this year due to robust demand for Chinese goods, particularly from Asian countries recovering from the regional economic crisis.

"The trade surplus for the whole year is expected to match last year's level, or could be slightly higher," Song predicted.

Some economists said imports were pushed up by China's intensified crackdown on smuggling, which has forced more imported goods to be declared through customs.

Song predicted China's exports would grow around 20 percent this year from last year while imports could surge 30 percent.

THE YUAN ENDS HIGHER ON TRADE DATA

In Shanghai, the yuan closed slightly higher against the dollar on Monday, buoyed by the foreign trade data.

The yuan ended at 8.2780 to one U.S. dollar from 8.2783 on Friday after moving in a narrow range between 8.2777 and 8.2785.

"Bank traders believed the trade data in general were positive as they showed a continued improvement in China's exports," a local bank dealer said.

A falling trade surplus would greatly affect dollar supply on the Shanghai-based foreign exchange market because the surplus was the key source for dollar supplies as the yuan was not convertible on current accounts, they said.

With the positive impact of an improvement in exports offset by a falling trade surplus, the yuan was likely to move narrowly between 8.2780 and 8.2790 in the near term, dealers said.-Reuters