Aiming to better strained relationship with the US and the EU over out-of-control trade surplus, Beijing is trying to adopt new polices to cut its export growth to avoid a potentially disastrous “political” problem. China currently has a trade surplus of USD 177 billion which could easily grow to USD 300 billion.

Experts fault the problem to arise from the export of high-energy-consuming and low-value-added goods from its goods processing sector and also from its largely under-valued and secretively managed currency. Last year, Beijing imposed taxes on the offending sector but its artificially low currency valued nullified such measures. US policy makers have been demanding an appreciating of its currency, the Yuan, and Beijing has conservatively allowed the upward movement against the dollar to a maximum of .3% every day. Last year, the currency moved up 3.2 against the US Dollar but experts in the US complain that the currency is undervalued by as much as 40%. In tacit admission, Chinese officials have revealed plans to appreciate the currency by 4-5% this year based on a “gradual appreciation: philosophy to minimize risks and “greater efficiency.” They are resistant to pressure from the US to appreciate it faster arguing that “monetary policy” must not be tied to “exchange rate policy.” Instead, conceding that “Cutting the huge trade surplus is the priority task for 2007,” Commerce Minister Bo Xilai says that his nation will use a combination of taxation, relaxed import restrictions, and financial incentives to deal with the problem.

It is not clear what new taxes it will impose and what incentives it will offer. But, the artificially low currency rate is stifling global trade and it is time that China addresses this issue.