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Sunday, April 10, 2011

Stock_for_YOU China Posts Largest Trade Deficit in Seven Years..sharper blow to export activity than expected

China Posts Largest Trade Deficit in Seven Years

China posted its largest trade deficit in seven years in February as the Lunar New Year holiday dealt a sharper blow to export activity than expected, while import growth also disappointed on the downside.

It was China's first trade deficit since March last year and its biggest since February 2004. Economists had expected a small surplus of $4.95 billion.

"Both imports and exports are lower than expected, and seasonal factors alone can't explain the sharp monthly drop," said Xu Biao, economist with China Merchants Bank in Shenzhen.

"It is definitely not a good sign. The size of imports is already read as a measure of domestic demand. But now imports have dropped significantly, and it points to a serious weakening in domestic economic activity," he said.

The government has in the past pointed to a narrower trade surplus as evidence that it is making headway in tilting China away from excessive reliance on exports, a shift which is seen as a crucial part of putting the global economy on firmer footing.

But economists cautioned against reading too much into one month's trade data, especially in the first quarter. Chinese exports typically slump at the start of the year, with the country's factories shut or running at half speed for weeks because of the Lunar New Year.

China exports grew 2.4 percent in February from a year earlier, and imports increased 19.4 percent, the customs agency said on Thursday.

The median forecast of economists polled by Reuters last week was for exports to rise 26.2 percent in February and imports to grow 32.2 percent.

China ran a $6.5 billion trade surplus in January and averaged $15 billion a month last year.

With import growth set to outpace export growth, China was hoping to narrow its trade surplus for the third straight year, Commerce Minister Chen Deming said earlier this week. China's trade surplus was $183 billion last year, down from $196 billion in 2009 and a record $295 billion in 2008.

Chen also said that the yuan was on "a gradual upward trend", but that there was no reason for it to move any faster. Although the yuan has been running near record highs against the dollar, it has only appreciated about 4 percent since being depegged last June.

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