Mainland to post a rare trade deficit in March

Reuters in Beijing
23 March 2010

Mainland will probably run a trade deficit of more than US$8 billion in March, state media said on Tuesday, citing Premier Wen Jiabao.

It would be China’s first monthly deficit since April 2004, but is expected to be a one-time blip rather than the start of a new trend for the world’s largest goods-exporting nation.

Nevertheless, many in the market think that Beijing will want to see several consecutive months of strong export growth before allowing the yuan to rise, so a deficit in March could put appreciation on hold for a while longer.

“To be honest, I was happy when I learnt of the situation [of the expected deficit],” Wen told a gathering of foreign business executives in Beijing, according to the China Daily.

“China is by no means seeking a trade surplus. On the contrary, we have left no stone unturned in expanding imports to achieve a trade balance,” he said.

Mainland’s trade surplus has narrowed over the past four months as imports, stoked by surging domestic demand, have grown faster than exports, which have been weighed down by a sluggish global recovery.

But Wensheng Peng and Jian Chang, economists with Barclays Capital in Hong Kong, said that mainland exhibited a seasonal pattern of smaller trade surpluses in the first quarter of the year.

“It is too early to conclude that China’s trade balance will turn into a deficit on a sustained basis,” they wrote in a note to clients. “Indeed, in our view, that development is unlikely.”

They forecast that mainland’s trade surplus this year would still reach US$186 billion, down a touch from last year’s US$196 billion.

The market was little affected by Wen’s talk of a deficit. Mainland’s main stock index dipped 0.7 per cent, while the yuan forwards market remained broadly steady, pricing in 2.3 per cent appreciation over the next 12 months.

Speaking to the same audience of foreign executives, Wen said that the country did not want “trade and currency wars”.

Many members of the US Congress have urged stronger steps from President Barack Obama to press Beijing to let the yuan appreciate. Mainland has in effect re-pegged its currency to the US dollar since mid-2008 to cushion its exporters from the global financial crisis.

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