Europe January-August trade gap with China soars

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Saturday , November 17, 2007 at 0056 hrs Europe’s trade deficit with China surged 25 percent in the eight months through August, giving European officials more reason to pressure China to let its currency trade freely when they visit Beijing this month.

The euro-area trade gap with China widened to 70 billion euros ($102 billion) from 55.9 billion euros in the year-earlier period, the European Union’s statistics office in Luxembourg said today.

China’s yuan has dropped 7 percent against the euro in the last year, fueling tension over the growing imbalance.

An EU delegation led by European Central Bank President Jean-Claude Trichet is due to visit Beijing Nov. 27, when it plans to tell China it risks ``triggering protectionist tendencies’’ because of the currency, according to a draft of a confidential briefing document. While China remains a focal pointfor EU attention, a bigger issue may be maintaining export growth in the face of a cooling U.S. economy. ``China is a big issue on the bilateral front,’’ said Kenneth Wattret at BNP Paribas in London.

``But the issue for us is whether the markets that have been driving export momentum — Central and Eastern Europe and more recently the U.K. — can continue to grow strongly if the U.S. is facing a recession.’’

The U.S.’s biggest housing slump in 16 years is threatening to spill over to other industries in the world’s largest economy and curb growth there. European exports to the U.S. fell 1 percent in the eight months through August from a year earlier, according to today’s figures.

Repercussions from the U.S. slowdown may hurt expansion in other economies, cooling Europe’s export growth to markets that are currently booming. Exports to Poland have jumped 22 percent this year through August, while sales to the Czech Republic gained 18 percent. Exports to the U.K., the euro area’s biggest trading partner, increased 6 percent.

The euro’s gains against other currencies, including the yuan and the U.S. dollar, may compound a downturn by making European goods less competitive abroad.

The dollar has slumped 10 percent against the euro this year, falling to a record low $1.4752 Nov. 9. Measured against an index of the euro area’s 24 main trading partners, the euro has risen 5 percent in that period. While China abandoned the yuan’s strict peg to the dollar two years ago, the government continues to control the exchange rate, an issue that officials from Europe and the U.S. plan to address at this weekend’s meeting of officials from the Group of 20 nations near Cape Town. Bank of England Governor Mervyn King said on Nov. 14 that the refusal of China to allow the yuan to trade freely is a ``major concern and all of us will want to discuss it.’’

The figures published today show that the euro area bought 21 percent more goods from China in the January-August period than it did a year earlier. That growth is faster than the 14 percent increase in exports to the Asian nation.

Trichet insisted last week that China meet its ``global responsibilities,’’ and U.S. Treasury Secretary Henry Paulson called Beijing ``out of step with the rest of the world.’’