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Europe's trade gap with China widens to record

Europe's trade deficit with China widened to a record in the eight months through August as the Asian economy is poised to overtake the US this year as the second-biggest source of imports to the euro area.

Imports from China to the dozen euro nations rose to €88.3 billion ($113 billion) in the first eight months of the year, up 21% from the same period a year earlier, the European Union's statistics office in Luxembourg said today. The trade deficit with China grew 21% to €55.1 billion. The growing trade gaps with China and Japan, Asia's largest economies, have prompted European finance chiefs to urge authorities in Beijing and Tokyo to let their currencies appreciate, calls that may be reiterated at this weekend's summit of finance officials from the Group of 20 industrial and developing nations. The yuan has dropped 5% against the euro this year and the yen is down 8%. The euro's gains against the yen and the yuan “have put foreign-exchange themes back on the G-20 agenda this weekend,” said Roberto Mialich, foreign-exchange strategist at UniCredit Banca Mobiliare SpA in Milan.

French Prime Minister Dominique de Villepin said November 14 that the euro's “current level is hampering some of our exports.” The country's president, Jacques Chirac, said two days later other European nations share his government's concern the euro's strength is hurting exports and employment prospects. “The criticisms put forward were not specially French, but collective,” Chirac said. The statistics office released the detailed trade data for the first eight months of the year at the same time as it announced the euro area's overall trade deficit fell in September to €900 million, adjusted for seasonal variations, from €3.3 billion in August. The agency provides an unadjusted breakdown of the statistics with a one- month lag. European exports increased 2% in September to €118.5 billion, seasonally adjusted, while imports fell 0.1% to €119.4 billion, the agency said. The euro area's overall trade deficit may be welcomed by trading partners such as the US who have urged Europe to do more to boost global growth as a way of narrowing international imbalances. Other European leaders have expressed concern with the yen's drop. EU officials view the yen's fall as “too rough,” Luxembourg Prime and Finance Minister Jean-Claude Juncker said November 7. The yen was little changed after the report, at 151.20 per euro at 11:10 a.m. in Brussels. China's yuan fell 0.2% to 10.0571 per euro.

Imports from Japan to the euro area rose 6% to €36.8 billion in the eight months through August, today's data show. The euro area's trade deficit with Japan widened 17% to €14.4 billion. Exports to the UK, the euro area's biggest trading partner, increased 6% to €141.5 billion, while imports rose 12% to €109.7 billion. Federal Reserve Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet and Bank of Japan Governor Toshihiko Fukui are among G-20 officials attending the summit in Melbourne, Australia, this weekend. The G-20's members account for about 85% of the global economy and 80% of world trade. In the US, officials have criticized China for its refusal to inject much flexibility into its currency. Since revaluing the yuan in July 2005, the government has limited its gains to 2.6%, antagonizing lawmakers and companies elsewhere who say it remains undervalued and limits the export potential of their economies. The US trade deficit with China rose to an all-time high of $23 billion in September from $22 billion in August, the US Commerce Department said November 9. China has come close to replacing Mexico as America's second-largest trading partner behind Canada, the data show. US imports from China increased to a record $27.6 billion in September, while exports to the Asian nation declined to $4.6 billion. (Bloomberg)