China's ballooning trade imbalance worries Apec

Updated at 1.22pm:
China's rising trade surplus was highlighted on Wednesday as a major worry for Asia-Pacific nations seeking to curb widening trade imbalances.

The 21-member Asia Pacific Economic Co-operation (Apec) forum meeting here this week noted that China's trade surplus was increasing fast, jumping 50 per cent this year, the forum's economic committee reported.

"And there is some forecast that this very steep increase in the trade surplus will continue into next year," committee chairman Lee Kyung-tae told a press conference. "This is a very new development. If the surplus continues to grow bigger and bigger, then it will invite the concerns of the rest of the countries in the world."

He also said most of Asian currencies, especially China's yuan, will come under mounting market pressure for appreciation because of those countries' growing current account surpluses.

"In order to mitigate the negative effects of the persistent current account imbalance on global and Apec economies, closer macroeconomic policy coordination is desired, including exchange rate arrangement and fiscal policy co-ordination," the committee report said.

Mr Lee said Apec members would continue to perform strongly, growing an average 3.6 per cent between next year and 2010.

"However, we see some problems - significant imbalances of current accounts," he said.

The chronic and widening US current account deficit was just the "mirror image" of Asian countries' structural and chronic surpluses, led by China, South Korea and Taiwan and Southeast Asian countries.

"In order to address the imbalances, we need to explore more closer collaboration of macro policies," Mr Lee said. "Also, we are faced with mounting requirements for realigning the exchange rates in the region, particularly in the United States and China."

Amid a widening US current account deficit, the Japanese yen, Chinese yuan and South Korea's won appreciated considerably last year and early months of this year, he said.

"I think the pressure for further appreciation of the currencies will be there this year and next year as well," said Mr Lee, who also serves as the head of the Korea Instititute for International Economic Policy.

Apec member states also said cutting farm subsidies was the key to unblocking troubled global trade talks, putting pressure on the European Union to offer deeper concessions. Agriculture had to be addressed first to ensure progress at the World Trade Organisation meeting on the so-called Doha round of trade talks in Hong Kong next month.

"We call for the breaking of the current impasse in agriculture negotiations," said a statement approved by foreign ministers obtained by AFP.

"Unless progress is made in this area, we cannot make progress in the round as a whole. Avoiding or compromising our ambition on this issue would mean we would lower expectations for the round as a whole."

Asia-Pacific nations have been involved in an increasingly bitter war of words with the EU over the past week, with Australia and the US repeatedly urging the EU to make new concessions.

However EU Trade Commissioner Peter Mandelson on Tuesday said the EU did not plan to make a further offer on agriculture before the December 13 to 18 WTO ministerial meeting in Hong Kong.

"I do not believe it will be helpful to the [WTO] talks to make a further offer on agriculture, because this would simply further unbalance the negotiations," he said.

In another indirect swipe at the EU, the Apec statement called for those countries with the biggest stake in the global trading system to make greater efforts to unblock the current impasse.

"We urge all other WTO members and especially those that have the largest stake in the global trading system and derive the biggest benefits therefrom to show the flexibilities needed to move the negotiations forward by and beyond Hong Kong."

The statement is to be issued by Apec leaders including US President George W. Bush after their summit talks here on Saturday.