beyondbrics

With president Hu Jintao off to the US next week and vice-premier Li Keqiang touring Europe right now, the latest set of trade numbers from China might have been designed to reduce the political tensions around the country’s economy.

With perfect timing, Beijing on Monday announced a trade surplus for December of just $13.1bn, well below economists’ predictions and November’s $22.9bn. And, as Chinese officials proudly pointed out, the annual surplus of $183.1bn was down 6.4 per cent, the second yearly drop in a row. It won’t stop the US and European states campaigning for renminbi appreciation – but it gives Chinese leaders a little ammunition.

The figures are of much more assistance to Li than to Hu. While the overall surplus is falling, the surplus with the US – the most important element in political as well as economic terms – is rising. It was up a full 26 per cent in 2010. As Capital Economics says in a report: “It is this bilateral imbalance that is likely to receive most attention when President Hu Jintao travels to the US later this month.”

Moreover, while the renminbi has strengthened since last June, when Beijing loosened currency controls, it has given back nearly a fifth of its gains and now stands just 2.8 per cent higher against the US dollar than in the summer. It has lost ground every trading day in 2011, including Monday, when it slipped 0.1 per cent to 6.6345 per US dollar.

Jamil Anderlini reported for the FT from Beijing, that many of China’s trade partners complain Beijing is pursuing a mercantilist policy by artificially holding down the value of its currency to subsidise its powerful export sector.

But Wang Han, an economist at advisory firm CEBM in Shanghai, told Reuters the Chinese economy was changing with domestic demand growing. “Imports are much stronger than we have expected, indicating that the domestic investment and internal demand are mainly pushing up domestic consumption.”

That is true. But, as Hu will be told in Washington, China’s economic rebalancing could take place faster with a bit more help from a stronger currency.