Spur consumption, eliminating trade gap
(Bloomberg)
Updated: 2005-06-07 19:00

China will introduce measures to spur consumer spending to reduce a trade surplus that's fueling tensions with the U.S. and Europe, People's Bank of China Governor Zhou Xiaochuan said.

"We haven't seen much increase in consumption, but rather we saw rapid growth in exports," he said at a conference in Beijing. "This isn't something we want to see. Our policies are to cut the trade surplus to zero if possible. We want to use new policies to increase consumption."

A pickup in consumer spending on imports would help ease pressure on China to scrap the yuan's decade-old peg to the U.S. dollar and limit inflows of foreign exchange that are hampering monetary policy, Zhou said. He said the central bank won't raise benchmark interest rates "for the time being."

China is under pressure to cut a trade surplus that the customs bureau says reached $21.2 billion in the first fourth months, compared with a deficit of about $11 billion a year earlier. The government has resisted calls to curb exports as that may deter hiring and hurt the economy, said Tao Dong, chief regional economist at Credit Suisse First Boston in Hong Kong.

"They don't want to stop exports," said Tao. "So the government is saying OK, if we can't do much on the export side, perhaps we should increase our imports."

High Savings Rate

Exports rose 32 percent from a year earlier in April, twice as fast as the nation's imports. Retail sales increased 12 percent, which was the smallest gain in more than a year, excluding the distortion to January's data caused by changes in the timing of the Lunar New Year holiday.

Zhou said the nation's savings rate is "pretty high" and the government will encourage households to spend more freely. That might be achieved by boosting welfare spending, said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong.

"One reason for high household savings is concern about social welfare, pension funds, medical care, education," Qu said. Diverting more money to these areas would "help to address public anxiety over these things," he said.

Zhou said stronger consumption won't deter the government from adjusting the yuan's peg, which the U.S., the European Union and Japan say gives Chinese exporters an unfair advantage by undervaluing the currency. Zhou said the issue shouldn't be used for political gain, adding that Chinese banks and companies need more time to prepare for any change.

Close

Today's Top News     Top China News
Growing China is no threat to the world - Tang         New rules to help private businesses         Spur consumption, eliminating trade gap         Rains, floods leave 180 dead or missing         No corruption found in Games preparation         Special care slated for 'big exam' sitters	Beijing Olympic slogan to be unveiled       Death toll in central China flooding rises to 87       Japan commits 9 mln US dollar aid in China       Chinese tourists allowed to visit UK, Chile, Jamaica       Nestle China apologizes for unsafe iodine infant milk powder       China said weighing bids on nuke plants