China March trade deficit will not change yuan outlook - analysts

GUANGZHOU (ICIS news)--China’s monthly trade deficit of $7.2bn (€5.3bn) in March is a temporary development and will not halt the yuan's appreciation trend, analysts said on Monday.

The trade deficit in the world’s third-biggest economy was the first since May 2004, according to data released by China Customs over the weekend.

Total imports in March increased by 66% year on year to $119bn, while exports rose by 24.3% year on year to $112bn, according to the customs statistics.

In the first three months of 2010, China posted a trade surplus of $14.5bn, down by 76.7% year on year, the data revealed.

The monthly deficit would not offer China a meaningful argument to avoid or delay its exchange rate reform, as it is a symptom of economic overheating and other one-off factors, said Jun Ma, Hong Kong-based chief economist at Deutsche Bank.

"We expect China’s trade balance to return to a surplus [within] a few months, and the outlook for the yuan to resume flexibility should not be affected," he added.

Yao Jian, a spokesman for China's Ministry of Commerce, said the main reason for the March deficit was the fast growth in imports, backed by increasing expansion of domestic consumption amid firming economic recovery.

Imports of raw materials grew strongly in March and prices rose significantly in the international markets, Yao said.

Crude imports in March increased by 28.9% year on year to 21m tonnes, with acrylonitrile-butadiene-styrene (ABS) resin imports rising 0.9% year on year to 190,897 tonnes. Imports of polyester chips and rubber increased by 59.5% and 19% respectively to 29,291 tonnes and 372,568 tonnes, the data indicated.

Import prices of crude oil, iron ore and pulp surged 101%, 21% and 55% year on year respectively in March, according to the customs data.

"We expect import price inflation to moderate later this year, partly due to the base effect [a reference to commodity prices increasing drastically in the second half of 2009, possibly leading to big year-on-year decreases in the second half of 2010] and the impact of China’s macro policy tightening. Import growth is expected to slow to 45% year on year in the second quarter and to around 30% in the second half of this year," Jun Ma said.

Yao expected the trade surplus to shrink by more than $100bn this year from a surplus of $196bn in 2009.

Liu Qiyuan, an analyst at Shenzhen-based broker China Merchants Securities, said: "The whole-year trade would unlikely turn into deficit and yuan may appreciate by 3-5% this year."

($1 = €0.74)