Decline in Surplus Set to Ease Pressure on China

China returned to a modest trade surplus in April after recording a deficit in March. The 87 per cent reduction in the surplus compared with last year could ease some of the pressure on Beijing to appreciate its currency.

The surplus was 1.7 billion US dollars in April following the surprise deficit of 7.2 billion US dollars in March, the first month in six years in which imports exceeded exports.

Although the headline figure for exports showed a 30.5 per cent increase over the same month last year, the recent tendency towards a much lower trade surplus could make it harder for other governments to argue that the Chinese currency is substantially undervalued.

Moreover, some economists believe Chinese officials will want to observe the effect of the Greek crisis on the European economy, which is China’s biggest export market, before they agree to begin appreciating the currency, which has been pegged to the US dollar since mid-2008.

Mark Williams at Capital Economics said: “For now, the (Chinese) commerce ministry will point to the small surplus as evidence that there is no pressing need to restart Renminbi appreciation against the dollar. Meanwhile, policymakers are watching with concern the unfolding of the Greek debt crisis.”

The euro decline meant that the Renminbi had appreciated by 5 per cent against a basket of currencies of its main trading partners this year.

However, if China did not begin to appreciate its currency over the coming months, he said, “pressure on it could escalate dramatically” and it would “find itself trapped”, with the issue likely taken up in the US mid-term elections.

Ken Peng, an economist at Citigroup, said market uncertainty about Greece gave China a “unique opportunity” to reform its currency policy because expectations about the size of any appreciation had reduced considerably.

In a quarterly report on monetary policy last night, the Chinese central bank said it would manage the Renminbi “with reference to a basket of currencies”, prompting speculation of an imminent policy shift, although the wording has been used before.

Qing Wang, an economist at Morgan Stanley, said: “In my view, this signals . . . the Chinese authorities’ intention to make a move.”

Although China’s trade surplus has collapsed in recent months, many economists expect it to rebound in the second half of the year as exports recover, albeit slowly, and imports slow because of extensive measures taken during the past month by Beijing to cool the property market.