China Feb trade deficit at 12-year high; surplus to return in Q2

12 March 2012 05:02  [Source: ICIS news]

By Fanny Zhang

China Feb trade deficit at 12-year high; surplus to return in Q2SINGAPORE (ICIS)--China posted its biggest trade deficit in 12 years last month as exports lagged behind imports growth, but a combination of a looser monetary policy, a stable exchange rate and better demand from Europe should help the country’s shipments abroad to grow stronger in the second quarter, analysts said on Monday.

The world’s second largest economy reported a $31.5bn (€23.9bn) trade deficit in February, its largest since 2000, with imports posting a 39.6% year-on-year growth to $146.0bn while exports grew at a slower rate of 29.4% to $114.5bn, official data from China Customs showed.

For the first two months of the year, China’s trade deficit stood at $4.2bn as total exports grew by 6.9% year on year to $264.4bn, while imports increased at a faster annual rate of 7.7% to $268.6bn, official data showed.

In the same period last year, the trade deficit stood at $890m, according to China Customs.

 Demand from the eurozone, a big market for Chinese end-products, is expected to recover in the second quarter and help China revert back to a surplus position in trade, analysts said.

China is expected to further loosen up its monetary policy to provide funding to small and mid-sized export-oriented enterprises, said Xie Yaxuan, chief economist at Shenzhen-based broker China Merchants Securities.

The eurozone, which is currently in the throes of a debt crisis, may finally get a reprieve in the second or third quarter, said Xiao, banking on the European Central Bank’s ability to tackle the problem.

“The big [trade] deficit in China was largely caused by weak demand in Europe, [which is] strapped by credit woes. So, when credit conditions improve, demand there will recover,” Xie said.

China is widely expected to keep its exchange rate stable to stimulate exports.

“The pressure of yuan appreciation against the dollar is actually reduced with appearance of trade deficits,” said Wang Hu, chief analyst at Shanghai-based Guotai Jun’an Securities.

The country’s Ministry of Commerce has set a target to achieve a 10% growth in foreign trade this year, but meeting it would entail a lot of hard work.

China will unlikely see any continuous or long-lasting trade deficits as it remains an export-led economy,” Wang said.

Like most Asian economies, China relies on exports as a major engine of growth, making it vulnerable to the financial and economic crises in the West.

($1 = €0.76)

By: Fanny Zhang
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