By Shanguan Zhoudong (chinadaily.com.cn)
Updated: 2007-07-12 15:33

Expanding domestic demand is key to curbing China's soaring trade surplus, according to a report published by People's Daily today.

China's trade surplus continues to grow in absence of a series of tightening measures.

The surplus soared to US$112.5 billion in the first half of this year, up 83.1 percent from a year earlier. The surplus for one month hit a record of $26.9 billion in June.

The dramatic increase was a result of enterprises rushing to export as much as they could ahead of July 1, when the value-added tax rebate was either scrapped or reduced as part of efforts to trim the surplus, Ministry of Commerce spokesman Wang Xinpei said.

Exports in June soared 21.7 percent to US$179.63 billion while imports grew 14.2 percent to US$76.36 billion, according to statistics from the China Customs.

China exported 6.36 million tons of steel products in June, up 43.56 percent from the same period last year and 3.08 percent higher than the May figure of 6.17 million tons.

According to Wang, in the second half of this year, growth in the trade surplus will slow.

Expanding productivities, vigorous exports, and bleak domestic demand are major reasons for the soaring trade surplus, according to a research report by Standard Chartered Bank.

Steel and some labor intensive industries such as textiles are the major contributors to trade surplus growth.

For example, statistics from the customs agency show that in the first six months of this year, China exported US$73.52 billion worth of clothing products, up 17.44 percent year on year.

More than US$50 billion of the textile sector's trade surplus accounted for nearly half of the nation’s US$112.5 billion in surplus in the first half of this year.

High exports levels also resulted in excessive liquidity and pollution problems.

An expert from the commerce ministry said that the surging trade surplus was not due to strong growth of exports, but resulted from the fact that imports were slowing down.

Experts also said that expanding domestic demand was the key to resolving the growing trade surplus, and that China should increase imports to balance its foreign trade and consume those products domestically.