Europe also replaced the US as China’s largest export market. Sales to an expanded European Union grew by 29.2 per cent in 2007, compared to just 14 per cent to the US.
Europe’s bilateral deficit, however, remains substantially less than that of the US, because EU countries export goods to China nearly double in value to those from America.
The overall surplus for 2007 was up 47.7 per cent on the previous year, driven by solid demand for textiles and footwear – long staple Chinese exports – and sharply higher sales of electronics and metals, especially steel.
Xinhua, the official news agency, said that exports grew 21.7 per cent in December, while imports increased by 25.7 per cent in the same month, cementing a trend begun in October.
Import growth has not outpaced exports for three consecutive months since the first quarter of 2004.
The turnaround is especially notable as the end of the year is traditionally a strong time for Chinese exports of toys and other goods to stock stores in the west for Christmas shopping.
Numerous factors inflated the cost of imports in 2007, including rising commodities prices – for oil and iron ore in particular.
But the biggest driver of the new trend has been sustained investment in China, which sucks in resources and capital goods, and falling demand offshore, especially in the US.
Despite the strength of imports, the trade surplus remains enormous, implying a current account surplus in 2007 equal to about 10.5 per cent of GDP, according to Stephen Green of Standard Chartered, in Shanghai. That is unprecedented for an economy of China’s size.
The trade surplus is expected to continue to swell in 2008, albeit at a slower pace than in the previous three to four years.
China’s currency, the renminbi, which has appreciated by about 12 per cent since Beijing broke the peg with the US dollar in mid-2005, has helped limit the surplus, by making imports cheaper.
But the appreciation of the currency does not yet appear to have had any material impact on China’s exports, which remain hyper-competitive.
The renminbi may become more of an issue for Chinese exporters this year, with many China economists tipping it to appreciate at a much faster rate in 2008, of about 10 per cent against the US dollar.
Higher wages, rising at a faster pace than productivity, along with more expensive environmental and land costs, may also bite into exporters’ margins.