China's trade surplus may surge to a new record high of around US$190 billion in 2007 despite a series of government efforts to both curb exports and encourage imports, the Chinese Academy of Sciences predicted in its latest analytical report.

Should this estimate become true, China would leapfrog Saudi Arabia and Russia to have the world's second largest trade surplus after Germany, said the report.

The government think tank said last year's trade surplus would climb 66.4 percent from a year earlier to US$169.4 billion, about US$1.9 billion higher than the Ministry of Commerce's official US$167.5 billion projection.

Further predictions placed the year's imports and exports at US$2.137 trillion, up 21.6 percent or US$137 billion from the figure forecast by the Ministry of Commerce in December.

These forecasts reveal the true titanic scale of the challenge awaiting China to deal with its trade surplus. The government has expressed its hopes to steady the country's annual foreign trade growth at 10 percent over the next five years and to balance imports and exports by 2010.

A spanner in these works may be the robust market demand and the global transfer of industry which have made China into the world's factory, both of them powerful engines boosting the country's exports.

"This year, the trade surplus with the United States and the European Union will grow even faster to hit US$178.2 billion and US$133.1 billion respectively," said the report.

"With its surplus expanding exponentially, China will face more trade disputes this year. The focus of friction will shift from clothing, textiles and shoes to electro-machinery products, steel and chemical products," it said.

The report did note that textile and clothing exports may undergo a slight torpor due to trade protection and barriers, it noted.

Exports of higher value-added electro-machinery products would notch up a surplus of US$118.1 billion in 2006, up 54.2 percent from 2005, and US$185.2 billion in 2007, up 56.9 percent year-on-year.

High-tech product exports are likely to see a surplus of US$34 billion in 2006, up 67.2 percent on a year earlier, and US$80 billion this year, up 131.2 percent from 2006, said the report.

The government has launched a battery of policy and tax incentives easing the exporting of electro-machinery and high-tech products to alleviate trade frictions raised by cheap lower value-added exports.

The report argued, however, that such measures would not have any measurable positive effect in the short term since the real cure lies in ensuring domestic companies acquire key production technologies.

About 90 percent of China's information technology exports are made by foreign-invested companies, blowing out China's export figures but bringing little value in terms of advanced technology, it said.

(Xinhua News Agency January 5, 2007)