Can you divorce the sexiest and the most ruthless of the Bretton Woods sisters?

Did you ever imagine that there will be a country in these times who would come under increased pressure to appreciate its currency? Normally the countries like Pakistan are persuaded to devalue their currencies and bring it at par with its real worth. But China has come under increased pressure once again because it has achieved record trade surplus of nearly $29 billion in the month of July alone, in spite of the fact that the quality of Chinese export goods has always been questionable. If the RMB is appreciated, the dollar value of export items would increase leading to price increase which, it is assumed, would discourage consumers to buy Chinese goods. That will bring the trade balance of China, together with its balance of payments, to normal and the risk of global trade imbalance would be averted.

Financial Times has also reported that China’s trade surplus surged again in July this year to its highest level in 18 months, adding to the political pressure on Beijing to appreciate its currency more quickly and highlighting questions about global imbalances. The trade surplus for July increased to $28.7bn, well ahead of the $20bn recorded in June and significantly more than analysts’ forecasts. The figure, one of China’s largest ever monthly surpluses, comes at a time when the US trade deficit has been widening.

China has been able to increase its trade balance not because of boosting its exports; it has also successfully managed its imports which as a consequence of this management significantly decreased. The data reflected a continued strong increase in exports, which rose 38.1 per cent year on year. Although this was down from the 43.9 per cent increase in June, Barclays Capital calculated that on a seasonally adjusted basis, exports had been 1.2 per cent higher than in the previous month.

At the same time, the pace of growth in imports slowed sharply from a 34.1 per cent year-on-year increase in June to a 22.7 per cent increase in July. This represented a seasonally adjusted drop of 5.6 per cent from the previous month, according to BarCap, as slowing domestic investment cooled Chinese demand for imports. Industrial production figures expected to be released on Wednesday will provide further insight into the extent of China’s slowdown.

China’s trade surplus could shrink again if weakening US and European demand hits exports or if Beijing eases some of the tightening measures it has introduced to try to cool its economy, which earlier in the year appeared to be at risk of overheating. The question is; can China teach Pakistan one or two lessons as to control its ever-increasing imports. If Pakistan takes a serious cue from China, it can divorce IMF for ever.