A report completed by the Ministry of Commerce's Department of Foreign Trade said Thursday the country's two-way foreign trade will hit US$1.4 trillion, according to International Business Daily, a newspaper published by the ministry.

The ministry has forecasted a trade surplus of US$90 billion to 100 billion for 2005, compared to a surplus of US$32 billion in 2004.

The report said the surplus will be created by a predicted 30 percent jump in exports to US$750 billion, compared with an 18 percent rise in imports to US$660 billion.

China recorded a trade surplus of US$60.2 billion in the first eight months of 2005, far surpassing the US$32 billion logged in 2004. Exports remained buoyant in the first eight months, rising 32 percent year on year to US$475.7 billion, while imports grew just 15 percent to US$415.5 billion.

The predicted trade surplus of US$90-100 billion will account for 5 percent of China's total trade volume, compared to 2.8 percent in 2004, the ministry's report said.

The ministry expressed its concern that the huge trade surplus will bring some negative impacts to the country's economy, though it is an engine of economic growth and increases foreign exchange reserves.

The negative impacts mainly exist in "creating new trade frictions, adding pressure for renminbi revaluation and financial risks," the report said.

Exports have continued to surge in spite of a landmark 2.1 percent revaluation of the yuan on July 21 to 8.11 per dollar, despite European Union and US quotas against China's textile exports.

China's central bank chief Zhou Xiaochuan said he expects trade friction to worsen this year in an interview with the Chinese financial magazine Caijing.

"The trade surplus was too high, but adjusting the exchange rate alone can do little to change the situation," Zhou said in the latest edition of the magazine seen yesterday.

China needs to urgently boost domestic demand in order to rein in export growth and fend off further trade friction, he said.

"Weak domestic consumption will further enlarge China's trade surplus, which is what we are unwilling to see," Zhou said.

China launched a series of measures early last year to cool its overheating economy, controlling investment in sectors such as automobiles, real estate, cement, iron and steel. The policy partly resulted in a smaller investment and a smaller demand for imports.

"In the major global economies, the influence of domestic consumption on the trade balance is far greater than that of foreign exchange rate adjustments," Zhou told the magazine.

On foreign exchange rates, Zhou believed the 2.1 percent revaluation of the yuan against the dollar in July could achieve its objectives, although he added that it is necessary to periodically assess what level is appropriate for the yuan.

Zhou said China maintained an average annual trade surplus of around US$20 billion from 2000 to 2004, which is about 2 percent of China's GDP.

"Therefore, a 2 percent revaluation should basically achieve the expected policy target," Zhou said.

(China Daily October 7, 2005)