Bangkok--23 Jul--Standard & Poor's China's trade balance is set to post another record surplus in 2007, which is likely to intensify external pressure on China to rein in its trade surplus. This in turn will increase the risk of China imposing more administrative policy measures, including direct restrictions on exports, to address the problem. Such actions could create new economic distortions and future policy problems for China, according to a report published today by Standard & Poor's Ratings Services titled "Pressure On China To Narrow Its Trade Surplus Will Increase Policy Risks". "Thus far, the Chinese authorities' actions to curb the country's external surplus are likely to benefit the economy," said Standard & Poor's credit analyst Kim Eng Tan. "Recent policy changes have largely removed or will remove measures that favor export industries over those that cater to the domestic market. These changes will in turn remove economic distortions that prevent a balanced development of the Chinese economy." However, these measures are unlikely to have a significant short-term impact on the trade surplus. For one, many of these policies promote structural adjustments that only show their effects with a significant time lag. Moreover, the recent trend in the trade surplus may have more to do with exchange rate expectations than China's trade competitiveness. "The disparity between China's expenditure-based aggregate demand and production-based GDP has risen sharply since 2005," said Mr. Kim Eng Tan. "This suggests that a part of the country's exports cannot be accounted for by production data. Hence, there is a possibility that a part of the increase in the trade surplus merely reflects disguised capital inflows." The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: Marc Eiger, New York (212) 438-1280 [email protected] Analyst Contacts: KimEng Tan, Singapore (65) 6239-6350 John Chambers, CFA, New York (1) 212-438-7344 Ping Chew, Singapore (65) 6239-6345