China recorded its first monthly trade deficit in six years, but a customs official called the shortfall a blip and economists doubted it would stand in the way of a resumption in the yuan’s rise before long.
China’s $7.24 billion deficit in March, the first time the trade balance has been in the red since April 2004, mainly reflected strong imports of oil, raw materials and cars, the General Administration of Customs said on Saturday.
Significantly, the level of both exports and imports was higher than inMarch 2008, before the global credit crunch reached a climax.
China’s leaders have said they want to be sure that exports have made a sustained recovery before unwinding anti-crisis policies, including a freeze of the yuan’s exchange rate against the dollar imposed in July 2008.
“The trade deficit will likely be cited as evidence that trade flows are adjusting despite the lack of change in China’s currency, but we do not think it will be enough to derail the move to a stronger yuan in the months ahead,” Brian Jackson, an economist with Royal Bank of Canada, wrote in a note.
Beijing is under intense pressure, especially from the United States, to scrap the yuan’s peg. Washington complains that the yuan is now seriously undervalued, handing Chinese exporters an unfair trading advantage.
The issue will be on the agenda when President Hu Jintao meets President Barack Obama in Washington next week.
Central bank governor Zhou Xiaochuan declined to discuss the yuan during a panel discussion at the annualBoao Forum for Asia on the southern island of Hainan.
Henry Paulson, the former U.S. Treasury Secretary, told the conference it was in China’s interests to have a more flexible exchange rate to dampen inflation and help shift growth toward domestic consumption and away from exports.
“You have to recognize that in the United States it is a symbol for China’s commitment to continued reform. My message to my Chinese friends is this is something that needs to be taken seriously and managed so there is continuing progress,” he said.
JUST A BLIP?
Paulson’s successor, Timothy Geithner, paid a hastily arranged visit to Beijing on Thursday on his way home from India, fanning speculation that a resumption if the yuan’s climb could happen soon.
Gao Yi, an economist with Orient Securities in Shanghai, said the March trade deficit may serve as another excuse for Beijing to delay a rise in the yuan, but he said China was likely to let the currency start appreciating either this quarter or next.
“As a large portion of Chinese imports is used for processing trade, strong imports now will translate into strong exports a few months later,” Gao said.
Indeed, Zheng Yuesheng, the customs agency’s statistics chief, said China was likely to remain a surplus country over the long run. March’s deficit was a blip, he told state television.
DEARER IMPORTS
If the deficit is a blip, it should not make a big difference to the decision about when and how to allow the yuan to resume its climb, said Mark Williams, an economist with Capital Economics in London.
“This move could happen any time, but the most likely window is still June, when officials will have been able to review two months data unaffected — as the March trade figures apparently were — by the volatility aroundChinese New Year,” he said in a note.
Williams said export factories were slow to get back to work last month after February’s long holiday break. So, while exports rose 24.3 percent in March from a year earlier to $112.11 billion, imports surged 66.0 percent to $119.35 billion.
On a month-on-month basis, China’s exports rose 18.6 percent in March from February, while imports rose 37.3 percent.
The jump in imports partly reflected higher commodity prices. The average cost of imported iron ore was 20.7 percent higher in the first quarter than a year earlier, customs said.
Liu Yuanchun, a professor with Renmin University in Beijing, said the import surge may ease a touch in April as buyers may hold off in anticipation of a stronger yuan, which would make the imports cheaper.
“But in my view, China might not go back to the pre-crisis yuan policy for another three months,” Liu said.
April 11th, 2010 at 4:29 am
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