Shrinking Surplus. Market Pricing.

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The infamous trade surplus is falling, but rather than being driven by structural changes in trade, it is sky-high commodities prices that are having an impact, as AFP reports:

    “Soaring imports caused China’s trade surplus to shrink nearly 10 percent as rising global commodity prices stoked inflation in the domestic economy, official figures showed Wednesday.

    China’s trade surplus stood at 20.2 billion dollars in May, down 9.9 percent from 12 months ago, prompted mainly by a 40-percent spike in imports to 100.3 billion dollars, according to customs data.

    …China’s May exports rose by a more modest margin than imports, increasing by 28.1 percent from the same month a year ago to 120.5 billion dollars, according to the customs authorities.

    The Chinese government said last week the nation’s trade surplus is likely to shrink in 2008 for the first time in five years on weakening exports mainly due to the rising local currency and the US economic slowdown.
    In the first five months of 2008, China’s trade surplus hit 78 billion dollars, a decline of 8.6 percent from the same period a year ago, according to customs.

    In the five-month period, exports increased 22.9 percent to 545.1 billion dollars, while imports rose 30.4 percent to 467 billion dollars, customs said.”

Higher commodity prices, including for oil, have impacted in other areas too – as a result of government intervention on pricing. AFP notes:

    “China sharply raised domestic energy prices across the board …as authorities shifted policy in the face of complaints that price controls were causing turmoil on global oil markets.

    …The price controls in China, the world’s second largest oil consumer after the United States, have been blamed for distorting global markets, which have been in turmoil for months.

    Wholesale petrol and diesel prices were raised 1,000 yuan (145 dollars) per tonne while aviation kerosene was hiked 1,500 yuan a tonne, the National Development and Reform Commission said.

    Retail prices of diesel and petrol were hiked to 6,520 yuan and 6,980 yuan a tonne, increases of 18 percent and more than 16 percent respectively.

    The rises would mean an increase of 0.92 yuan and 0.8 yuan a litre (51 cents and 44 cents per US gallon) for diesel and petrol, state-run Xinhua news agency said.

    In a bid to appease those most affected by the price rise, the finance ministry Friday said it would allocate 19.8 billion yuan (2.9 billion dollars) in subsidies.

A Xinhua makes an interesting (for official Chinese media) point:

    “…when the energy price is subject to the market rule instead of the administrative price intervention, it would help ease the shortage of supply against demand and improve the efficiency of macro economic policies.

    Therefore, this price rise is a benefit viewed against the long-term prospective.

    …In the market economy theories, one of the cornerstones is to respect the role of price in the market, because it is born as the most sensitive and effective element to balance demand and supply. Its change would directly encourage or suspend demand, which would, in turn, improve or distort market structure.

    …Oil price rise might cause some immediate pressure or trouble, but a respect to the law of market economy would definitely promote smooth economic growth in the future.

More price reforms in the pipeline? My, how China has changed!

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