Sunday, April 11, 2010

397) China: first trade deficit in years

China Sees First Trade Deficit in Years
The New York Times, April 10, 2010, page B4

HONG KONG — China announced on Saturday that it had a trade deficit of $7.24 billion last month, its first monthly trade deficit in nearly six years, as imports jumped along with a surging domestic economy while exports grew more modestly.

Chinese New Year came late this year, falling on Feb. 14, which hurt factory production on the coast in early March. Many migrant workers travel home for two weeks for the celebration, and they were slow to return to their coastal plants in large numbers because there are now many jobs available in construction, retailing and other industries in the country’s interior.

According to the official Xinhua news agency, China’s General Administration of Customs said the March reading was the first trade deficit since April 2004. China had a trade surplus of $7.6 billion in February and $14.2 billion in January.

Top commerce ministry officials in Beijing had warned repeatedly over the last three weeks that China would run a trade deficit in March. They cited the risk of a monthly deficit as part of their broader campaign to prevent the government from letting the country’s currency, known as the renminbi or yuan, rise against the dollar and other foreign currencies.

After letting the renminbi appreciate gradually against the dollar from 2005 to 2008, the government has kept the renminbi at about 6.83 to the dollar since July 2008, spending hundreds of billions of dollars on currency market intervention to prevent it from appreciating. The weakness of the renminbi has helped China capture a rising share of export markets in the United States, the European Union and elsewhere during the global downturn.

But the commerce ministry has lost its battle to preserve the renminbi’s informal peg to the dollar and the Chinese government will soon adopt a new currency policy, including a small rise in the renminbi against the dollar and wider day-to-day variation in the currency’s value, people familiar with the emerging consensus in Beijing said on Thursday and Friday.

These people, who insisted on anonymity because of the diplomatic and financial sensitivity of the issue, said that China would shift its currency policy in the coming days. But investment bank economists were generally skeptical on Friday, saying that any change would take weeks, not days.

The March deficit was much larger than the consensus estimate of Western economists, who had been anticipating a deficit of less than $1 billion. Chinese officials have long been wary of trade deficits, after monthly deficits in 1993 and early 1994 depleted the country’s foreign exchange reserves.

But after accumulating $2.4 trillion in foreign exchange reserves, trade deficits have become less of a monetary policy issue. Commerce ministry officials have warned, however, that if trade deficits reflect weak overseas demand and exports stumble, then layoffs at export factories could eventually increase unemployment and hurt social stability.

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