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Tuesday, July 10, 2007

Chinese surplus

China's trade surplus rose 73 percent in May from a year earlier, increasing pressure on the Chinese government to allow faster currency gains.

The gap widened to $22.5 billion, since surging exports spurred economic growth of 11.1 percent in the first quarter and drove forex reserves to a record $1.2 trillion. The median estimate of 18 economists surveyed by Bloomberg News was for a $19.5 billion surplus. For the first five months, the surplus grew 84 percent to $85.72 billion.

A stronger yuan would ease tensions with trading partners and help prevent the world's fastest-growing major economy from overheating. China's boom in overseas sales fuels asset bubbles at home by flooding the financial system with cash. The government last month increased a share-trading tax to cool the stock market. It has also increased interest rates, ordered banks to set aside larger reserves to rein in lending and investment, invested in hedge funds and sold bills to soak up cash.

But then why is the chinese currency artificially kept down? You never know. Perhaps, it’s got to do with the fear of losing the appeal behind its brand name `Chinese prices’ and `Chinese quality’….

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