By Patricia Lui
March 18 (Bloomberg) -- Political concerns will deter China from pursuing a weaker yuan as exports slump and the trade surplus shrinks, according to Goldman Sachs Group Inc.
China’s trade surplus plunged to $4.8 billion in February, or about an eighth of January’s balance, as overseas sales fell by a record 25.7 percent from a year earlier. The deterioration has spurred speculation that the government will weaken its currency, which some U.S. lawmakers say is kept artificially weak to help Chinese exporters compete.
“Such fears are overdone,” Mark Tan, a New York-based analyst at Goldman, wrote in a report yesterday. “There is the political barrier and the sensitivities associated with competitive devaluations, something which China cannot avoid given the intense focus on this issue.”
Moreover, China’s trade balance is unlikely to slip into a deficit this year although the surpluses will continue to narrow, Tan wrote in the report. U.S. Treasury Secretary Timothy Geithner in January said China was “manipulating” its currency, which has gained 21 percent since a dollar peg was scrapped in July 2005.
The yuan was little changed at 6.8351 a dollar as of 12:30 p.m. in Shanghai, compared with 6.8372 late yesterday. It was 6.8318 at the end of July, the month the government started favoring a stable currency to help exporters weather a global recession. Non-deliverable forwards contract indicate the yuan will ease 0.6 percent to 6.8744 in six months.
Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net
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