The ‘Drug’ of External Trade

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Notwithstanding the assurances from China on exchange rate and valuation, the current account surplus that was just announced by the Chinese government has jumped dramatically.  In a WSJ article it is reported that China’s second quarter surplus was $USD72.9 billion a 35 percent increase from a year earlier.  The announcement from SAFE (State Administration of Foreign Exchange) was that China’s trade surplus had reached $102.3 billion. This figure represents a doubling from a year earlier.

The second quarter numbers signaled a major rebound from the first quarter when the current account surplus was down 32 percent from a year earlier. It would appear with this announcement  of third quarter figures that China’s external current account surplus is returning to levels reached before the 2008 global financil crisis.

With figures reaching 7.2 per cent of gross domestic product that all the discussion of redirecting China’s economy to greater domestic consumption is to be kind – ‘premature’.  It would appear that China’s foreign  exchange reserve are now about $USD2.65 trillion.  This very large figure puts pressure on China’s authorities to address exchange rates and should be putting pressure on these officials to accelerate efforts to finalize “indicative guidelines” for the global imbalances discussions at the G20.

If not ‘currency war’ the expression coined by the Brazilians to describe the current global imbalances may be proven not to be wrong.