China will encourage imports and restrict exports this year in a bid to balance trade and ease the concerns of trading partners.

"Cutting the huge trade surplus is the priority task for 2007," Commerce Minister Bo Xilai said yesterday.

He made the remarks as China's trade surplus widened to a record $177.5 billion in 2006, 74 percent higher than the $101.88 billion in 2005.

If it grows at the same rate this year, the trade surplus will mount to $300 billion, which is "likely to transform an economic problem into a political one". 
 
"The yawning surplus with the United States and the European Union has strained China's foreign trade environment, triggering more frequent trade friction," he said.

Bo said an overly-large trade surplus is not good for China's sustained economic growth; therefore, the government will "decisively" reduce exports of high-energy-consuming and low-value-added products to restructure the sector.

Last year, a package of industrial and taxation policies were implemented to rein in exports of energy-consuming products, in particular exports of processing trade, which contributed around half of the trade surplus but yielded slim profits.

To boost imports, the government will relax restrictions and announce taxation and financial incentives.

"We will largely increase imports which have high demand in China," Bo said without giving details.

Experts in Beijing said the imports to be encouraged should include energy, resources and key technologies and equipment.

While trying to cut the surplus, governments will try to minimize the negative effects on trade, employment and the economy, Bo added.

For example, exporters previously banned from the processing trade are encouraged to switch to manufacturing for the domestic market.

Bo added, however, that the central government would continue to encourage exports from central and western China.

China's widening trade surplus has been cited as a reason to press Beijing to revalue its currency, People's Bank of China Governor Zhou Xiaochuan was quoted as saying at a meeting in Switzerland last week.

He added that China can further increase the flexibility of its exchange rate if trade surpluses continue to mount.

Cutting the structural trade surplus will take at least two years despite the government's determination, said economist Fan Gang.

He predicted that China's exports will continue to grow stronger than imports this year, which means the surplus is likely to increase but at a slower pace.

Editor: Donald