China's trade surplus high on weak domestic demand

China’s trade surplus high on weak domestic demand

The revaluation of the yuan has had little effect on China's trade surplus as exports remained king due to low domestic demand. In August, the first full month after the revaluation of yuan, China's exports climbed 32.1 percent year on year to $67.82 billion while imports increased 23.4 year on year to $57.78 billion. The $10 billion monthly trade surplus is an increase of 122.1 percent over the previous year. China is expected to lead other nations this year with a projected trade surplus in excess of $100 billion. As reported earlier by SteelOrbis, China's producer price index (PPI) unexpectedly rose 5.3 percent year on year in August. The increase was 5.2 percent in July. With the August figures, PPI for the first eight months of 2005 rose 5.5 percent year on year. Meanwhile, China's consumer price index (CPI) unexpectedly slowed to 1.3 percent in August from 1.8 percent in July. Fierce competition meant that producers were not able to transfer their higher costs to consumers. The surprisingly low CPI for August added to the uncertainty over the country's inflation outlook. Total CPI in the first eight months rose 2.1 percent year on year. The trade surplus and low CPI versus a high PPI are signs that China is facing the danger of weak domestic demand. China's economy is highly dependant on exports, and the economy may find itself in a difficult situation should foreign demand for the country's products fall.