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Trade surplus reaches new peak
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08:43, September 11, 2008

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China's trade surplus reached a new record high of $28.7 billion in August after its imports significantly slowed as a result of weakening domestic demand, analysts said.

The nation's export growth slowed to 21.1 percent year-on-year in August from 26.9 percent in July, but its import growth slowed more sharply to 23.1 percent from 33.7 percent, leading to the record monthly surplus.

China's exports to the United States, the European Union and Japan all registered a slowdown in August.

Many analysts attribute the slowdown in imports to China's slowing economic growth, which expanded 10.4 percent year-on-year in the first half of 2008, compared with 11.4 percent last year.

"Slow import growth and the reacceleration and pick-up in trade surplus growth in August could be an indication of weakening domestic demand, induced by the credit tightening which began nearly a year ago," economists from Goldman Sachs in Hong Kong said in a research note.

Sun Mingchun, an economist with Lehman Brothers, said that "the sharp decline in import growth reflects the combined effects of falling crude oil prices, a decline in imports of refined oil products following the Olympic Games, the appreciation of the US dollar against other major currencies, as well as weakening import demand as the export outlook darkens".

Half of China's exports are from the processing and assembly trade, which imports raw materials and components first before exporting final products.

China's export growth nevertheless remained resilient in August, despite the previous reports of a large number of coastal exporters going bankrupt.

"What is likely happening is that thousands of small, inefficient producers are going out of business and large exporters are still expanding production," said Stephen Green, senior economist with Standard Chartered Bank (China). But he said that "the golden times are certainly over" for Chinese exporters.

As Europe, the biggest destination for Chinese exports, now experiences an economic downturn, exports are likely to slow "in the last few months of the year", he wrote in a research note.

As the trade surplus hit a record in August, analysts said it may put more pressure on the yuan appreciation.

"While we expect China's export growth to follow a downtrend in the months to come, the still-huge trade surplus suggests that pressure on the yuan to appreciate has not reduced much," Sun said.

Meanwhile, the Ministry of Commerce said yesterday that the country attracted $67.73 billion in foreign direct investment (FDI) in the first eight months of 2008, up 41.6 percent year-on-year. Actually utilized FDI in August was $7.01 billion, up 20.4 percent year-on-year.

But the number of newly established foreign enterprises dropped by 24.35 percent year-on-year. The drop in August alone was 39.5 percent.

The opposite growth trends may indicate that some speculative capital has entered China disguised as investment funds, analysts warned.

Source: China Daily

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