Concern about China’s currency grows

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In 2005, China’s trade surplus was “only” $102 billion. In 2006, it jumped to $177.5 billion. And now the numbers for 2007 have just come out: Last year, China’s trade surplus jumped 47 percent and is now an astonishing $263 billion. 

But before you go jumping on the alarmist bandwagon about cheap Chinese goods flooding the global markets, know that in the last three months, import growth actually exceeded export growth. That means that means that the trade imbalance may be peaking. And that could be a good thing for everyone. Obviously, trading partners such as the United States have their own interests in seeing the trade surplus slow down. But inside China, there are also worries that the economy is growing too fast. Inflation in China is the highest it’s been in 11 years, and according to a recent public opinion survey, the number one thing that Chinese are most worried about is the rising prices of consumer goods.

Although the Chinese government has been making some moves in recent months to curb inflation—Prime Minister Wen Jiabao froze energy prices earlier this week, and Beijing has also been letting the yuan run up modestly—some economists think it’s not enough. Check out “China’s Currency Crunch” in the latest issue of FP. Marvin Goodfriend and Eswar Prasad argue that China needs to let the yuan float completely—not just because it would ease American concerns about unfair practices, but because it would be good for the Chinese themselves. Check it out.