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Last Updated: Monday, 12 March 2007, 10:52 GMT
China's trade surplus jumps ahead
Chinese worker making lightbulbs
Strong demand for cheap exports is driving economic growth in China
China's trade surplus neared record levels in February - fuelling criticism that its currency is undervalued.

The surplus hit $23.8bn (12bn) for the month, more than nine times higher than a year earlier and the second largest on record, official data shows.

China has resisted calls from the US to remove currency controls that limit the amount the yuan can rise or fall.

The US argues that China keeps the yuan artificially cheap in order to boost its exports.

According to Goldman Sachs analysts "the significant increase in the trade surplus, both in terms of its levels and the year-on-year growth rate, continues to put the yuan exchange rate under the spotlight".


China's exchange rate policy has been a source of contention in the US, with many politicians and company executives calling for trade sanctions unless China allows its currency to appreciate in value.

Some critics want a 27.5% import tariff put on Chinese goods entering the US.

US Treasury Secretary Henry Paulson has held long talks with China over its currency policy, as did his predecessor John Snow.

On Monday, Commerce Minister Bo Xilai said that sanctions would hurt companies on both sides.

This broad-based acceleration implies global demand for Chinese products is strong
Qu Hongbin, HSBC

"If the proposal goes ahead, it will be destructive to the current bilateral trade which is developing healthily, as well as disastrous news to both countries' enterprises that have achieved double-win in the relationship," said Mr Bo.

The central bank said that it would take steps to change currency controls, which at present allow the yuan to climb or fall a maximum of 0.3% from a daily fixed rate.

"The managed floating exchange rate regime will be further improved and the flexibility of the exchange rate will be enhanced," the central bank said.

The bank would "keep the exchange rate basically stable at an adaptive and equilibrium level", it explained, adding that it would also look at ways of opening up its markets -, allowing more capital abroad - and deepening financial reforms.

Strong demand

The problem for the US is that it wants quick action and the Chinese are unwilling to rush through changes.

Burberry shop front in China
China's fast growth is also attracting imported goods global brands

Central bank governor Zhou Xiachuan said "the current trend of imbalanced trade will take some time to be adjusted and addressed".

Chinese exports rose by 52% in February from a year earlier, the fastest rate in more than a decade. Imports climbed by 13%.

Steel exports almost tripled in January and February, while foreign sales of furniture increased by almost 50%, electronics and machinery grew by 38% and clothing rose by 44%.

"This broad-based acceleration implies global demand for Chinese products is strong," said Qu Hongbin of HSBC.

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