1215940346f86fb00314f305_pa2928c.jpg

China’s Shrinking Trade Surplus

Throughout 2010, China was criticized by the US Congress (and many others) for “manipulating” its currency in order to maintain an advantage for exports, and thus preserve its trade surplus. But China’s trade surplus has decreased by by more than half relative to GDP over the past two years, despite the slow pace of the renminbi's appreciation.

BEIJING – Throughout 2010, China was criticized by the United States Congress (and many others) for “manipulating” its currency in order to maintain an advantage for exports, and thus preserve its trade surplus. China’s behavior, it was alleged, was the source of today’s huge global imbalance.

China, however, refused to accept the blame and declined repeated US demands to undertake a large revaluation. The exchange rate of the renminbi against the US dollar rose only about 3% between June 2010 and the year’s end. According to an analysis used by some American economists and politicians, the low rate of currency appreciation, combined with Chinese export growth of 31% in 2010 over 2009, should have increased China’s trade surplus by a wide margin.

In fact, China’s trade surplus decreased by 6.4% in 2010 compared to 2009. And that decline follows a 30% drop in China’s trade surplus in 2008, owing to the global financial crisis and subsequent recession. Overall, China’s trade surplus has decreased by 36% in absolute US dollar terms, and has dropped by more than half (53%) in proportion to GDP over the past two years. So the ratio of China’s current-account surplus to GDP is down to 4.6%, significantly below the recent peak of 11.3%, reached in 2007.

https://prosyn.org/NeJmhKq