China's Trade Surplus Widens to Record $29.3 Billion

By Nipa Piboontanasawat and Li Yanping

Oct. 13 (Bloomberg) -- China's trade surplus widened to a record in September, boosting the currency reserves that may shield the world's fourth-biggest economy from the global crisis.

Exports rose 21.5 percent from a year earlier to $136.4 billion after gaining 21.1 percent in August, the customs bureau said on its Web site. The trade surplus climbed to $29.3 billion, a figure derived by deducting the value of imports from the number for exports.

China has cut interest rates twice in a month to stimulate the economy as the worst financial crisis since the Great Depression undermines global growth. The surplus adds to $1.8 trillion of foreign-currency reserves, a buffer that may help the nation to maintain an expansion of more than 9 percent even as a world recession looms.

``It's not a bad thing to have a relatively large trade surplus when there's a global financial crisis,'' said Wang Qian, an economist at J.P. Morgan in Hong Kong. ``China's foreign- currency holdings will help the country to survive the crisis.''

The median forecasts in a survey of 13 economists were for export growth of 20 percent and a trade surplus of $24.5 billion. The previous record was $28.7 billion in August.

``Holding the world's biggest foreign-exchange reserves puts China in a better position to cope with the global financial crisis,'' said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. ``If needed, China may also be able to cooperate with the U.S. on financing the bailout of its financial system.''

Copper, Oil

Imports increased 21.3 percent to $107.1 billion after climbing 23.1 percent in the previous month. Falling prices for commodities such as copper and oil have trimmed the value of inward shipments.

``The good news is that imports are healthy, showing China's domestic demand remains very strong,'' said Mark Williams, a London-based economist with Capital Economics Ltd. ``China's growth rate will slow but it won't be traumatic because export falls will be to some extent offset by healthy spending at home.''

The International Monetary Fund said last week that China's economy may grow as much as 9.3 percent next year. The second- quarter expansion was 10.1 percent.

Export growth is down from 25.7 percent for all of 2007.

``Although the numbers look like China's exports are holding up, the volume growth of exports has slowed to below 10 percent,'' J.P. Morgan's Wang said. ``Export growth will continue to weaken as the economic slowdown spreads from developed economies to emerging markets.''

Garments, Shoes, Furniture

Sales growth this year has been ``sound'' for machinery and electronic exports and weaker for bulk commodities such as garments, shoes and furniture, the customs bureau said. Garment exports in the first nine months rose 1.8 percent to $87 billion, down from 23 percent growth in the same period last year.

Export growth to the U.S. slowed by 4.6 percentage points from a year earlier to 11.2 percent in the first nine months, the customs bureau said. Trade with India ``surged,'' it said, with imports and exports together jumping 54.9 percent through September from a year earlier.

``Maybe world demand is providing a last gasp,'' said Ben Simpfendorfer, an economist with Royal Bank of Scotland Plc in Hong Kong. ``Look for a sharp slowdown in the fourth quarter. The final two months of the year will be particularly weak as electronics exports are typically shipped during this period and they are the export sector's growth engine.''

Emergency Rate Cuts

China's latest cut in borrowing costs came last week as part of an emergency coordinated bid to thaw credit markets. The Federal Reserve, European Central Bank and four other central banks also lowered rates. China's one-year lending rate stands at 6.93 percent.

Policy makers may also cut taxes, boost spending, loosen restrictions on lending and restrain the yuan's gains against the dollar, already pared to less than 1 percent last quarter, to protect jobs and stimulate the economy, economists say.

``We expect export growth to decelerate sharply in the coming quarters,'' Wang Tao, an economist at UBS AG in Beijing, said Oct. 9. ``As the financial crisis develops, the most important concern for China is economic growth and the government will ease both fiscal and monetary policy to protect it.''

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net