China may reform its currency as exports surge again

China's exports surged by 48. 5 per cent year on year in May, triggering eculation that the much awaited reform of its currency Yuan against the US dollar is round the corner. Imports too climbed 48.3 per cent, China's General Administration of Customs announced on Thursday.

In value terms exports totalled $131.76 billion in May, while imports totalled $112.23 billion. The US and the EU accuse China of making windfall profits out of its exports by pegging its currency deliberately low that makes its exports cheaper.

In March, China posted its first monthly trade deficit in the past five years, but was soon followed by a small surplus in April. However, with a 20-billion trade surplus, the Chinese government may finally begin to increase the value of its currency against the dollar, which is being vehemently demanded by the United States.

Chinese President Hu Jintao promised reform during last month's US China Strategic and Economic Dialogue, which was expected to be implemented in a gradual manner.

Economists said the reforms are likely to coincide with the forthcoming G20 summit on June 26-27 in Toronto, Canada and would be implemented on a gradual basis rather than a one-off revaluation, state run China Daily reported on Thursday.

"With the surplus getting bigger, the currency revaluation is likely to be implemented most likely around the G20 Summit," said Dong Xian'an, chief economist at Industrial Securities in Shanghai.

Concerns about the trade deficit and the likely impact of the European debt crisis on China's exports and the economy have provided fodder for the government to delay currency revaluation plans in the last two months.

"The trade deficit is only momentary and exports growth will be stronger than expected and supported by return of price inflation in exports by mid-2010. We expect China will reform its exchange rate regime very soon," Sun Mingchun, an economist with Nomura Global Economics, said in a report.