LEAD: China's trade surplus reaches record high in 2007

Asian Economic News, Jan 14, 2008

BEIJING, Jan. 11 Kyodo

(EDS: UPDATING, ADDING ANALYST COMMENT)

China's massive trade surplus with the rest of the world rose to a record $262.2 billion in 2007, the government announced Friday, up nearly 48 percent on the previous year.

A statement from China's customs authority said exports totaled

$1.22 trillion last year, while imports reached $955.8 billion.

The surplus has largely been fueled by Chinese manufacturers' success in exporting their goods abroad and is a source of friction between China and many of its trade partners.

Critics such as the United States and the European Union say Chinese firms have an unfair advantage because the value of China's currency is being kept artificially low, making their goods cheaper.

The United States and the European Union say China should speed up the appreciation of the yuan and also allow foreign firms greater access to its markets to reduce the trade surplus.

China counters the yuan has risen steadily in value since its peg with the dollar was scrapped in 2005 and it was allowed to float on currency markets within a narrow band.

The customs department statement released Friday also emphasized that in the last quarter of 2007 the level of imports to China began to narrow the gap with exports.

The trade surplus in December was $22.7 billion, compared with just over $26 billion in November, it said.

China has taken a number of measures to try to cool its rapidly expanding economy amid concerns that uncontrolled growth is fueling inflation, which rose to an 11-year high 6.9 percent in November.

The measures included raising interest rates for the sixth time in a year last month in an attempt to rein in speculative investment.

Stephen Green, a senior economist at Standard Chartered Bank in Shanghai, said the weakened U.S. economy has helped reduce the level of Chinese exports in recent months.

''We're seeing Chinese export growth of about 5 to 6 percent to the U.S., compared with about 30 percent to Europe. It's largely external factors rather than Chinese policy which are slowing exports,'' he said. ''But China will still come under pressure over increasing the value of the yuan. The Europeans in particular have adopted a more aggressive stance, which makes China more responsive.''

EU Trade Commissioner Peter Mandelson said in Beijing in November that Europe is losing patience with China's slow progress in tackling various issues, including the trade surplus, intellectual property rights and fair overseas access to Chinese markets.

He previously said China's trade surplus with the European Union is rising by about $22 million every hour, partly because of what he called China's unfair trade practices.

''It's hard to see how long our patience can last if our treatment does not improve,'' he said.

China's government has repeatedly said that a rapid increase in the value of the yuan could harm China's economy. This in turn would hit markets around the world as China is one of the main engines for global economic growth, it says.