Trade surplus hits record high
By Hu Yuanyuan (China Daily)Updated: 2006-11-09 08:44
On the other hand, the extraordinary widening of China's trade surplus in October is partly due to the shopping spree around Christmas. Retailers in the United States, Europe and across Asia stock up on Chinese-made electronics and toys ahead of the shopping season.
The swelling trade surplus, however, weighs more on pressure for further yuan appreciation.
The yuan has risen 3.1 per cent against the US dollar since China ended a currency peg to the US dollar in July 2005 and allowed it to trade 0.3 per cent on either side of the dollar on a daily basis.
China's foreign exchange reserves, fuelled by a burgeoning foreign trade surplus and massive inflow of foreign direct investment (FDI), overtook Japan's to become the world's largest in February and has exceeded US$1 trillion thus far.
In fact, reserves could very well double to hit US$2 trillion by late 2010, said Ba Shusong, a researcher with the Development Research Center of the State Council. He said China's forex reserve might grow to US$1.5 trillion by 2008.
Such a huge reserve will make the country more susceptible to foreign exchange rate fluctuation, experts say.
Although some economists suggest that part of the reserve should be used to boost the country's pension fund, Wu Xiaoling, vice-governor of the People's Bank of China, does not agree with that plan. "Foreign exchange reserves are an item on the central bank's balance sheet," she said last month. "Whoever wants to use our reserves will have to use yuan to buy them from the central bank because we spent money buying them."
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