BOAO, China (AFX) - China's mounting trade surplus will not be reduced solely by allowing the local currency to appreciate more rapidly, a senior economist said.
Fan Gang, president of the Institute of National Economy and the only-non government representative on the central bank's monetary policy committee, said greater effort needs to be made to boost household spending and distribute the profits of state-owned enterprises.
Economists maintain that stimulating domestic consumption will in turn encourage imports and could help keep a lid on the trade surplus.
Speaking at the Boao Forum for Asia in Hainan province, Fan said both consumer and enterprise savings are rising. Enterprise savings rose to 18 pct of income in 2006 compared with 10 pct in 2005.
In the household sector, savings have on average accounted for 25 to 28 pct of household income over the past 10 years.
But Fan welcomed Beijing's efforts to improve its social security and welfare system, which should help reduce precautionary household saving and encourage spending.
Still, China's exports have continued to surge, driving the trade surplus higher. The country's trade surplus totaled 46.4 bln usd in the first quarter, after reaching 177.47 bln usd for all of last year.
Many of China's key trade partners insist the yuan is undervalued and that is responsible for China's growing trade surplus.
China has said it wants to let market forces play a greater role in determining the value of its currency, which is now described as being maintained in a 'managed float.'
Meanwhile, Long Yongtu, secretary-general of the Boao Forum, told the conference that while currency appreciation may have some impact on the trade surplus, other countries such as the US need to address their problems as well.
US officials, in what has been called a 'strategic dialogue' with China, have agreed that the US needs to work harder to encourage Americans to save more.
Long is a former top trade negotiator for China. In his previous role he helped China gain entry into the World Trade Organization.
will.davies@afxasia.com