China records rare $7.2bn trade deficit

China records rare $7.2bn trade deficit
By Patti Waldmeir in Shanghai and Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2010
Published: April 10 2010 06:52 | Last updated: April 10 2010 06:52
http://www.ft.com/cms/s/0/c28b949a-445d-11df-9986-00144feab49a.html


China on Saturday announced a rare deficit in its politically sensitive trade balance for March, the first in six years, bolstering Beijing’s argument that the value of its currency only has a limited impact on international trade flows.

News of the $7.2bn deficit comes at a fortuitous time for Beijing, which is under pressure particularly from the US to allow the renminbi to appreciate – a move which would make American exports to China relatively cheaper. Timothy Geithner, US Treasury secretary, this week made an unscheduled visit to Beijing for talks with Wang Qishan, the Chinese vice-premier responsible for economic affairs, as the US Congress has been putting pressure on the White House to force a change in China’s currency regime. Hu Jintao, the Chinese president, is also likely to discuss the renminbi with Barack Obama when he flies to Washington for nuclear talks on Monday.

The trade gap was mostly due to strong imports of oil, raw materials and cars, the General Administration of Customs said on Saturday. Chen Deming, China’s commerce minister, said in recorded comments broadcast on state television that he expected the deficit to be temporary. It reflected China’s openness to other economies and was not linked to exchange-rate levels, he added.

The deficit supports arguments often made by Chinese officials and analysts who say the level of the renminbi is not the most important factor influencing China’s trade surplus and other countries’ deficits. They point to the fact that a 21 per cent rise in the renminbi against the dollar between 2005 and 2008 was accompanied by a soaring Chinese trade surplus.

However, economists pointed out that the March data were not likely to significantly delay any decision by Beijing to allow the currency to appreciate, although they could undermine the near-term case for renminbi appreciation. Saturday’s announcement suggested that trade flows were adjusting even though the dollar exchange rate had been stable since the middle of 2008, said Nigel Rendell of RBC Capital Markets.

“We believe ... that the significance of such an outcome is somewhat overstated, given that it is normal for China’s monthly trade balance to be lower in the first quarter of the year,” he said.

”For the whole year we still expect a trade surplus. How big it is depends on how fast the economy grows and what happens with commodity prices and import volumes,” Guo Shuqing, chairman of China Construction Bank and former head of the State Administration of Foreign Exchange, said before the data were released. He said the expected monthly deficit was largely due to seasonal factors in the wake of the Chinese new year holiday in February and stockpiling by Chinese companies.

The month following Chinese new year, which fell in February this year, is usually characterised by a significant narrowing in the trade surplus, says Jing Ulrich, head of China equities and commodities at JP Morgan. “This is primarily due to Chinese manufacturers ‘front-loading’ ... production and shipments ahead of the holiday season, in order to ensure that orders scheduled after the holiday can be met on time,” she added.