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Don’t Misread China’s New Trade Deficit

China's Auto Market Is The Real Deal

China’s new trade deficit, booming Chinese economy, Chinese Customs Administration, China’s president, Hu Jintao, Jim Trippon, China

 

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It would be a mistake to regard China’s new trade deficit, the first in six years, as a sign of any new economic weakness. Take a look more closely at the numbers and a picture of a booming Chinese economy continues to emerge.

China exported an impressive $112 billion worth of goods and services in March. That is up 24 percent year over year.

Imports surged even more, up 66 percent year over year to $119 billion. China’s voracious consumption of imports resulted in a trade deficit of $7.24 billion. The resulting one-month deficit was the nation’s first since it posted a much smaller deficit in April of 2004.

What do the numbers show us so far? First of all, we see that China’s participation in global trade continues to expand at a double-digit rate. Combining both imports and exports, China's total foreign trade rose 42.8 percent year over year to $231 billion in March of 2010.

Clearly China is continuing to act as the engine of global recovery. China’s enormous demand for foreign goods and raw materials boosted imports to new levels.

Surging importation of commodities such as oil, iron ore and copper increased total import spending by 15.3 percent. Vehicle imports rose 240 percent year-over-year to $3.2 billion. Shrinking exports of labor-intensive Chinese products also contributed to the rare deficit.

China’s new trade deficit, booming Chinese economy, Chinese Customs Administration, China’s president, Hu Jintao, Jim Trippon, China

In other words, weak global economic conditions have lowered demand for high-value Chinese products, while Chinese consumption and demand have increased.
The Chinese Customs Administration posted the following commentary on its website: “Neither is the March deficit a recession, nor can it sustain,” adding that the deficit was relatively small and that China has maintained a “basic balance” between imports and exports.

That’s true. Looking at the trade balance for the entire first quarter of the year, China's January to March total imports and exports rose by 44 percent to $617 billion. So, for the first three months, China is still posting a trade surplus of $14.5 billion.

It’s worth noting that the 2010 first quarter surplus was down sharply by 76 percent from the same period of a year ago.

The Chinese government says it will be content with balanced global trade, although China’s trade surplus with the U.S. remains higher than with its European or Asian trading partners.

China’s president, Hu Jintao is currently in Washington for an international nuclear summit and he is expected to have further meeting with U.S. lawmakers about the controversial valuation of the yuan. There can be little doubt that the first quarter trade deficit and declining trade surpluses will tend to ease international pressure on China to radically revalue the yuan.

Disclosure: no positions