Foreign trade boost fuels inflation fears

Latest figures show sustained rebound in demand among Chinese consumers and overseas customers ahead of shopping season

Rising demand ahead of the Christmas shopping season boosted China's foreign trade to a historic high in November, even as it triggered speculation of higher interest rates to curb growing inflation.

Exports surged 34.9 percent year-on-year to $153.3 billion (113.9 billion euros) in November from the same period last year - much higher than the 25 percent expected by economists and far greater than the 25 percent increase in the previous month, recent figures from Customs showed.

The country's imports also grew at a faster pace, surging 37.7 percent year-on-year to an unprecedented $130.4 billion.

China's trade surplus in November stood at $22.9 billion, up 15 percent from a year ago. But it shrank from the $27.1 billion recorded in October.

The country's trade with the European Union grew 33.8 percent year-on-year to $433.88 billion during the first 11 months of this year, while trade with the United States surged 30.2 percent on an annual basis to $346.89 billion.

November figures indicate a sustained rebound in demand among Chinese consumers and overseas customers ahead of foreign countries' shopping seasons, analysts said.

"The strong rebound in China's exports generally collaborates with Europe and the US economic data flow, which seems to have improved in recent months, perhaps partly reflecting much stronger holiday demand this year than last year," Nomura International Ltd analysts Sun Chi and Tomo Kinoshita said in a research note.

However, exceedingly strong export growth amid an already overheated domestic economy is not good news as "it adds to the overheating pressures which will require the government to take even more stringent measures to bring down inflation", said analysts Song Yu and Qiao Hong from Goldman Sachs Group Ltd.

The analysts pointed out that the figure could buttress the argument from the Chinese government to remove stimulus measures adopted during the global financial crisis.

The central bank announced on Dec 10 that it would raise the reserve requirement ratio by 50 basis points, effective Dec 20.

"We view this as a welcome step as data released earlier clearly highlighted the need for further policy tightening. Not only money and credit growth remained very strong, which tends to boost already very strong domestic demand growth, external demand growth has been rising very quickly as well," Goldman Sachs analysts said.

"Aggregate demand growth is likely to accelerate further which will add more underlying inflationary pressures despite the fact that food, especially vegetable prices, has been coming down in recent weeks."

Fresh figures showed November's new loans were 564 billion yuan (63 billion euros), leaving this year's total about 50 billion yuan short of the government's target maximum of 7.5 trillion yuan, Bloomberg data shows. Analysts' median estimate was for 500 billion yuan of loans last month.

M2, a measure of money supply, increased 19.5 percent, the central bank said. The country's top leaders held a meeting in Beijing last week to set guidelines for the 2011 economy, indicating more tightening of monetary policy.