China may report trade deficit in March

21 March 2010

China could report a trade deficit in March, the country’s commerce minister said Sunday as he rejected U.S. pressure to ease currency controls and blamed Washington for the Sino-U.S. trade gap.

Washington and other trading partners are pressing China to ease currency controls that have kept its yuan steady against the dollar for 18 months to help their companies compete amid weak global demand. Some U.S. lawmakers have demanded to have China declared a currency manipulator in a U.S. Treasury Department report due out next month, which could set the stage for possible trade sanctions.

Business groups say China’s currency controls keep the yuan undervalued by up to 40 percent, giving its exporters an unfair price advantage and swelling its multibillion-dollar trade surplus.

Chinese Commerce Minister Chen Deming dismissed charges that exchange-rate controls are the cause of the surplus, blaming instead U.S. restrictions on exports of certain goods to China, such as high-tech items that could have both civilian and military use.

“Both in theory and in practice, the appreciation of a country’s currency has a very limited role in adjusting trade,” Chen said in a speech at the China Development Forum in Beijing, according to a transcript posted on the Web site of the China Economic Daily.

Asked what measures China would adopt if the U.S. Treasury declared it a currency manipulator, Chen reiterated Premier Wen Jiabao’s statement a week ago denying the yuan was undervalued.

“If (the Treasury Department’s) reply is accompanied by trade sanctions and trade measures, we will not ignore it,” Chen said, adding that if any legal action is taken against China, “we will take them on.”

Such a finding would trigger talks between the two nations with a threat of trade sanctions if the talks failed to resolve the issue. The Obama administration, following the lead of the Bush administration, has so far refused to cite China as a currency manipulator, believing that the more productive course would be to convince the Chinese that it is in their own interests to allow their currency to rise in value.

But Chen pointed to the decline of China’s global trade surplus for the January-February period by 50 percent from the same time last year _ despite the yuan’s stability _ and said “I personally expect that a trade deficit may occur in March.”

The narrowing of the trade surplus reflects surging Chinese demand for imports spurred by its quick rebound from the economic crisis, while the United States and other key export markets are still struggling.

China’s global trade surplus was $7.6 billion in February and the combined January-February surplus was $21.8 billion. Its trade surplus with the United States in the January-February period shrank by 27 percent to $20.9 billion. The gap with the 27-nation European Union, China’s biggest trading partner, widened by 34 percent to $22.3 billion.

China’s combined trade surpluses with its major export markets were larger than its global surplus because it also ran substantial deficits with Australia, Brazil, Taiwan and other suppliers of iron ore, industrial components and other materials needed by its booming export manufacturers.


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