The news of China's meteoric increase in trade surplus for the first two months of 2007 took even Chinese trade officials by surprise. Traditionally the country's trade surplus only peaks in the second half of the year, along with the rising demand of the international market.

The Chinese Customs Administration has disclosed the nation's trade statistics for January and February, which show exports rose to $168.71 billion and imports $129.1 billion in February, up 51.7 percent and 13.1 percent respectively, leaving a trade surplus of $23.757 billion, growing almost tenfold from the same period in 2006.

Many regard curbing this mammoth surplus as one of the most arduous tasks ahead. An estimate by the Ministry of Commerce suggests that China's export growth should be 3 percentage points lower than that of imports even if the authorities wish to keep the surplus at last year's level of $ 177.47 billion. Meanwhile, a research paper from the Chinese Academy of Sciences predicts China will become the second largest surplus economy in the world, right after Germany. This is borne out by the paper's expectation that the surplus, though likely to grow at a more moderate pace, will nonetheless bolt to $191.8 billion during 2007.

Apart from massive inflows of hot money entering on speculative investments, local enterprises are seen as having embarked on an "exporting spree" over the past months. They were prompted to rush into selling goods overseas, concerned by a tightened exporting policy put into place from this year. This measure is part of the government's determination to rein in the surplus.

The more profound reasons for the trade surplus, however, may well be attributed to the present local industrial make-up and global division of labor. As industrialized economies are increasingly embarking on capital-intensive, hi-tech and knowledge-based economic development, their generally labor-intensive and lower-ended manufacturing industries are being shifted to developing countries with cheap labor. As of the end of last year, some $ 493 billion, or 70 percent of FDI had been thrown into the manufacturing sector, making China virtually "the world's factory" churning out manufactured goods in great abundance to meet the consumer needs of the world. Statistics from the Ministry of Commerce indicate that nearly 60 percent of China's exported goods are made by wholly foreign-owned companies or Sino-foreign joint ventures based on the mainland, and that manufactured industrial goods represent over 90 percent of the country's gross export value. This is a further indicator that reducing China's growing trade surplus is a long-term operation and can only be completed when the structural barriers are removed.

Here a point should be made with regard to China's growing surplus. While the country's bilateral trade with some deficit-inflicted partners, such as the United States and the European Union, continuously runs in its favor, businesses in these countries have most often grabbed the lion's share of the trade proceeds. An oft-cited case is that of Barbie dolls, made in China and sold at $2 apiece overseas, but tagged at $20 in the U.S market. In another instance, a study shows that although 60 percent of the shirts sold in Great Britain are "Made in China," none of them is a Chinese brand. And for a shirt priced at £30, or roughly $60, the original selling price of the Chinese makers is only $3.5.

It appears that both China and its trade partners have gained from their bilateral trade, but it is developed economies that turn out to be the greater beneficiaries, no matter how big a surplus China may have with them.