China's December Trade Surplus Slows

China's trade surplus droped for the second consecutive month in December as export growth slowed, signaling that China's economic exansion may now have peaked. The surplus for December shrank to $22.7 billion from $26.2 billion in November, the Chinese customs bureau today. Exports grew at the slowest pace in two years, indicating that recent yuan gains, the cooling global expansion and cuts to export-tax incentives on polluting industries are beginning to bite. For 2007, the trade gap surged 48 percent to a record $262.2 billion, giving U.S. and European officials ammunition to keep calling for faster appreciation of the yuan.


Shipments rose 21.7 percent in December to $114.4 billion, compared with last month's 22.8 percent and the slowest since December 2005 excluding distortions from Lunar New Year holidays in January and February.

Imports climbed 25.7 percent in December to $91.7 billion, maintaining the previous month's 25.3 percent pace of expansion.

After the figures were released, the yuan rose to the highest since a dollar peg was scrapped in 2005, trading at 7.2620 per dollar at the close in Shanghai. The currency, which advanced for a fifth week, has climbed 14 percent since the link was scrapped. The CSI 300 Index of shares rose 0.5 percent to the highest since Oct. 17.

The yuan advanced 7 percent against the dollar in 2007, twice as fast as in 2006, partly because the central bank boosted interest rates to a nine-year high.

China's economy expanded 11.5 percent in 2007, the fastest pace in 13 years, according to government forecasts.
China reduced export-tax incentives twice last year on products including pig iron and nickel. New tax rules to slow exports of some other steel products that took effect on Jan. 1 may cool shipment growth further. Steel-product exports fell 14 percent in December from a year earlier.

Government policy makers last month named inflation and the risk that the economy will overheat as its two main concerns for 2008 and said the People's Bank of China would pursue a ``tight monetary policy.''

The policy is designed to slow the rate at which cash has been funneled into building thousands of factories, many of which may become idle should export demand dwindle too fast.

Policy makers are trying to prevent the economy from overheating in the face of risks that global growth will stall and slash demand for Chinese-made goods.

China's money-supply grew at the slowest pace in seven months, evidence that central bank measures to cool inflation and prevent the economy from overheating are beginning to work.

M2, the broadest measure of money supply, rose 16.7 percent to 40.3 trillion yuan ($5.55 trillion) from a year earlier, the central bank said today on its Web site. The pace slowed from November's 18.5 percent.

The central bank has been trying to stem the flood of money into the economy from a record trade surplus to slow the fastest inflation in 11 years and curb investment. The bank is likely to take more measures to limit credit because money supply growth is still more than the 16 percent target set for last year.

China's foreign-exchange reserves, the world's biggest, rose 43 percent to a record $1.53 trillion at the end of 2007 from a year earlier, today's central bank statistics showed.

As well as six interest rate increases last year, the central bank has raised the amount of money banks must set aside as reserves to a 20-year high and directed banks to limit lending.