China to Be Second-Largest Market by 2010, Wu Says

May 24 (Bloomberg) -- China will probably surpass Japan by 2010 to become the world's second-largest consumer goods market, as economic growth raises the income for the nation's 1.3 billion people, said Chinese Vice Premier Wu Yi.

The Chinese finance ministry's move last week to slash taxes on 209 types of imported goods including appliances, softwood and kitchenware will stimulate consumption, Wu said today.

``China's economy still has the capacity to absorb imports from all over the world,'' Wu said in Washington D.C. at the end of two days of discussions with U.S. officials. ``China doesn't run trade surpluses against our trading partners on purpose, and the government has set forth an economic policy of boosting imports and closing our trade gap.''

China's 2007 trade surplus may widen by an estimated 12.7 percent to a record $200 billion, as the world's fourth-largest economy sells more clothes, shoes, appliances and foodstuff abroad. Wu held talks with U.S. Treasury Henry Paulson and members of Congress to block potential legislation to impose tariffs on Chinese exports.

``We've heard protectionist voices from both sides,'' making it ``more important that there's some kind of framework to make sure the relationship move forward and doesn't get pushed back to directions that aren't helpful,'' said John Frisbie, president of the U.S.-China Business Council, commenting after hearing Wu's Washington speech.

U.S. Deficit

U.S. trade deficit with China soared last year to a record $232.5 billion, underscoring the concerns by U.S. congressmen about losing American jobs to cheap Chinese products. Wu, 68, earlier today met President George W. Bush, who described the U.S.-China relationship as ``complex.''

The U.S. is ``watching very carefully'' China's steps on its currency, Bush said, and is prodding China's government into opening its capital markets to international financial institutions.

Low-priced Chinese products helped the U.S. alleviate inflation, enabling American consumers to afford cheap shoes, clothes and DVD players at Wal-Mart Stores Inc.'s supermarkets, Wu said.

Chinese products saved U.S. consumers $600 billion in expenditure in the past 10 years, China's Assistant Finance Minister Zhu Guangyao said on May 15, citing figures by the U.S. Economic Institute.

U.S. Companies in China

About 85 percent of China's 2006 trade surplus with the U.S. was from foreign companies operating in China, Wu said. Much of the surplus with the U.S. is because of exports of products such as shoes that the U.S. no longer makes, she said.

U.S. legislators have pledged to proceed with sanctions on Chinese imports unless the yuan climbs faster than its 8 percent gain against the dollar since July 2005.

People's Bank of China Governor Zhou Xiaochuan said this week that China plans to further increase flexibility in the yuan's exchange rate.

China last week increased the amount its currency can appreciate by widening the bands within it can fluctuate against the dollar to 0.5 percent from 0.3 percent.

Democratic Representative Sander Levin of Michigan, who chairs the trade panel of the House Ways and Means Committee, said yesterday the yuan is undervalued by as much as 40 percent.

China will lift a ``hold'' on foreign firms entering its securities industry and allow overseas banks to offer yuan- denominated credit and debit cards, Paulson said after the talks concluded yesterday.

China will also increase the quota allotted to approved international investors for the purchase of stocks usually reserved for domestic buyers, he said.

To contact the reporter on this story: Li Yanping in Washington at yli16@bloomberg.net

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