China's increased trade surplus may force it to revalue Yuan

China's trade surplus of $11 billion in March, second highest monthgly surplus ever after October 2005's 21 million, may make President Hu Jintao's visit to the United States rather tough.

This further coupled with slowing imports has further made the demand stronger that China should revalue its currency. Increased exports in consumer durable segments as Toys to DVD players etc contributed to the increased surplus in fourth quarter of the year in the retailing season. Though, Country and segment wise details of the exports are yet to be released, it is believed that much of its trade growth is because of higher sales of cell phones and color televisions.

During Hu's visit, issue of China artificially pegging Yuan at low value to boost its competitiveness of exports is going to come under fire. US manufacturers have been blaming closure of their textile and furniture plants on Cheap Chinese Imports, which they allege has been because of artificial pegging of Yuan at lower levels. Since revaluation of Yuan by 2.1 percent in July 2005, it has appreciation by another 1.25%.

China is keen that US announces its immigration reforms to suit Chinese interests and therefore, may yield to US demand on this issue, which otherwise too is gaining ground. Record numbers of complaints have been filed against China in WTO against its antidumping practices. On the other hand, China also is keen not to give impression that it has yielded to external pressure to revalue its currency.

Chinese manufacturers too have been facing high wage rise and higher costs of imports, while US and EU importers have refused to pay higher prices for their imports. They allege that the Government is doing enough to protect their interests and its inaction is allowing China to become "world's largest victim of protectionism".

They also allege that American restrictions on the export of technology citing its use for potential military applications are also hindering their growth. However, U.S. trade representative, Mr. Bhatia, was quick to rebut this saying, "This is as red a herring as they come." Chinese manufacturers also allege that its Government agreed to special rules when it joined the World Trade Organization in 2001 agreeing to restricted Chinese exports of these goods, even after lifting the quotas.