China's surplus eases ahead of G20 summit

As the world's finance ministers prepare to meet for their first summit under French chairmanship in Paris on Friday, news emerged from Beijing yesterday that China's vast trade surplus with the rest of the world had halved.

China's trade surplus fell by 53.5 per cent to $6.45bn (£4.03bn) in January as exports and imports grew strongly ahead of the Lunar New Year holiday. As part of a trend towards a lower trade balance and accompanied by a modest upward movement in the yuan-dollar rate, it will be welcome news as rows between China and America, the "G2", about an allegedly undervalued Chinese currency usually disrupt G20 meetings.

Despite many communiqués promising to address the problem, including a pledge at last November's leaders' summit in Seoul to encourage "market oriented" exchange rates, progress in addressing this "global imbalance" has so far been glacial. Meanwhile, the US has launched a "currency war" – printing $600bn to try to force the dollar down and the yuan higher.

The latest numbers suggest that, to some extent, China is listening to Western demands, and re-orienting towards domestic consumption of foreign goods and services. However, only a relatively small proportion of the movement in trade is due to Chinese consumers buying more. Much more is due to the pick-up in Chinese demand for commodities to fuel its industrial expansion – and of inflation in the price of those commodities, as a result of its own insatiable demand. Thus, imports from the US and EU barely moved, but those from Australia – raw materials – jumped.

Fears of an overheating economy prompted the People's Bank of China to raise interest rates last week.