Large China trade surplus keeps yuan in focus

China chalked up a trade surplus of $23.91 billion last month, the fourth largest on record, adding weight to criticism of Beijing's currency policy ahead of this week's Group of Seven finance ministers' meeting.

The surplus was down from $25.0 billion in August but up from $15.3 billion in September 2006, the customs administration said.

The outcome beat forecasts of $22.0 billion and took the surplus for the first nine months to $185.65 billion, up 69 per cent from the corresponding period last year.

China has now exceeded the record surplus of $177.47 billion for all of last year, with the three busiest months for exporters in the run-up to the Christmas holidays still to come.

"I think the trade balance will remain a long-term issue, will continue to put pressure on the currency," said Jun Ma, chief China economist for Deutsche Bank in Hong Kong.

The torrent of foreign exchange earned by exporters is a big headache for the central bank, which finds itself buying more and more dollars to hold down the yuan's exchange rate.

China added $101 billion to its foreign exchange reserves in the third quarter, the central bank said.

The stockpile, the world's largest, swelled to $1.434 trillion at the end of last month. That is powerful evidence to economists - and to many US and European politicians - that the yuan is indeed undervalued.

The issue will be high on the agenda when the G7 - the US, Japan, Germany, Britain, France, Italy and Canada - meet in Washington on Friday.

The EU ratcheted up pressure over the yuan, announcing it would send its top three economic policy makers to Beijing before the end of the year to argue that a stronger currency was very much in China's own interest.

US Deputy Treasury Secretary Robert Kimmitt said that China understood the need to let its yuan currency rise in value but the process was too slow.

China has let the yuan gain a further eight per cent against the dollar since it was revalued by 2.1 per cent in July 2005 and cut loose from a dollar peg to float in managed bands.

That shift in exchange rates is gradually helping American manufacturers and farmers. US exports to China were a record $5.9 billion in August, helping to reduce the bilateral deficit to $22.5 billion, down 5.4 per cent from July.