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China Debates Exchange Rate’s Impact On Trade Surplus

Commerce Minister claims China is pursuing a ''balanced trade'' policy and expects its burgeoning trade surplus to narrow.

KUALA LUMPUR, Malaysia (AP) - China's exchange rate alone cannot help the country trim its bulging trade surplus, Commerce Minister Bo Xilai said Friday, amid criticisms that Beijing is keeping the yuan undervalued to boost trade.
''Exchange rate can play a certain role in trade...but not a decisive one,'' Bo, who is in Malaysia, told reporters when asked whether allowing the yuan to rise could help contain the surplus.
''The more important factor affecting trade surplus or trade deficit is the structure of products and structure of trade,'' he said.
China's politically volatile trade surplus hit a new monthly high in June, jumping more than 85 percent from a year earlier to hit $26.9 billion.
That pushed the total surplus for the first half of the year to $112.5 billion, breaking the $100 billion barrier for the first time in a six-month period.
U.S. critics say China's currency controls are partly to blame for the trade gap as China keeps its yuan undervalued, giving Chinese exporters an unfair price advantage. Some American lawmakers are calling for legislation that would impose punitive tariffs or other controls on Chinese imports if Beijing fails to let the yuan rise.
Bo, however, attributed China's growing trade surplus with the U.S. to growing domestic demand in the U.S. for medium and low-end Chinese products which the U.S. doesn't produce.
''Even if they don't import from China, they will have to import from elsewhere,'' he said. ''The U.S is running a trade deficit with all its top 10 trading partners, which is why it has an overall trade deficit.''
''It is the result of industrial (changes) in its overall economic structure,'' he added.
Earlier, Bo said China is pursuing a ''balanced trade'' policy and expects its burgeoning trade surplus to narrow.
''We have made some adjustment ... we are pursuing a narrowing of the trade surplus,'' he said, without elaborating.
China's global trade surplus rose to $177.5 billion last year. The United States reported a $232.5 billion trade deficit with China in 2006. China's trade gap with the U.S. is larger because it has a deficit with other trading partners.
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