(FT) -- China's trade surplus jumped in July to its highest level in 18 months, raising new questions about whether the country's currency remains undervalued despite government efforts to introduce a more flexible exchange rate.
The trade surplus for July increased to $28.7bn, well ahead of the $20bn recorded the month before and significantly above analyst forecasts, according to data released on Tuesday.
The pace of increase in exports actually fell last month to 38.1 per cent, year-on-year, down from 43.9 per cent in June. However, import growth slowed even more, moving up 22.7 per cent against 34.1 per cent in June.
The rising trade surplus will increase the political pressure on Beijing to appreciate its currency more rapidly. Earlier in the year, Beijing was able to point to a series of much smaller monthly surpluses -- and a trade deficit in March -- as evidence that the economy was already rebalancing and was much less dependent on exports. However the figures over the last three months suggest that the surplus in the second half of the year is likely to be much larger.
Yet the slowdown in import growth in China could also be a reflection of a significant cooling in the domestic economy, which would make policymakers in Beijing more reluctant to strengthen the currency sharply.
"The two developments will only add to Washington's insistence on a stronger renminbi and to Beijing's resistance," said Ben Simpfendorfer, an economist at RBS in Hong Kong. Such a stalemate could lead to a new push in the US Congress to pass measures penalising Chinese exports, especially as the November mid-term elections approach.
China signalled a major shift in exchange rate policy in late June when it said would abandon the de facto currency peg it had operated for the previous two years against the US dollar. But since then there has only been very modest movement in the exchange rate, with the renminbi rising 0.78 per cent against the US dollar.
The pace of slowdown in the Chinese economy in the second half will be heavily affected by what happens in the property market, which the government has tried to cool after a period of feverish speculation in many cities. House prices last month in the country's 70 largest cities remained flat compared to June, according to figures released on Tuesday, although on a year-on-year basis the pace of increase slowed from 11.4 per cent in June to 10.3 per cent.
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