China's Trade Surplus Shrinks; Bank Lending Overshoots

China's trade surplus almost halved in December 2010 after imports grew more than anticipated, reports the Chinese government. But the country's foreign-exchange reserves continued to expand, ending 2010 at US$2.8 trillion, up 7% from the third quarter 2010, even as bank lending in 2010 overshot the target by nearly 6%, coming in at 7.95 trillion yuan.

 

The December figure helped pare last year's trade surplus by 6.4% to US$183.1 billion, compared to 2009, although that figure is still higher than the government's target of US$150 billion. News of the narrowed trade surplus comes just as Chinese President Hu Jintao is due to make a January 18-21 visit to the U.S. The smaller may help mollify some American politicians, who have complained bitterly about China's ever widening trade surplus, which they attribute to an artificially cheap renminbi.

 

Even so, the renminbi is seen as still grossly undervalued, having appreciated only about 3% agains the U.S. dollar since July last year.

 

Meanwhile, the continued expansion of bank lending raises inflation worries. When China was hit by high inflation in the past, the government had responded by hitting the brakes hard, causing sharp disruptions in the economy and business operations.

 

 

 

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