Saturday, April 10, 2010

China Trade Review - March 2010

China reported its first monthly trade deficit in 6 years during March as imports surged. The trade deficit for March was -$7.24 billion, compared with consensus estimates for -$0.39 billion, and February's +$7.60 billion, and March 2009 surplus of +$18.6 billion.

Exports were up 24% year over year at $112 billion, against consensus estimates for a 27% improvement. Imports surged 66% compared to March 2009, growing to $119 billion, and beating consensus estimates for a 55.7% increase. Some of the gains in imports are related to increasing import prices (e.g. commodity prices).

The rolling annual trade surplus has been consistently declining since the beginning of 2009. However it is probably not yet cause for any great degree of excitement about the prospects of China becoming a net importer of goods. This will likely happen at some point in the future, and will go some way towards reduction of global imbalances and associated vulnerabilities. One thing is for sure though, trends like this point to China becoming a key driver of global growth.

As a side note, the data will also weigh in on the Yuan debate, where some sort of movement is expected in the immediate term as the US delayed the release of its currency report, and several bilateral meetings of high level officials occur. It is almost inevitable that there will be a move in the currency this year, but just what exact form it takes remains to be seen. The forecasts range from a 2% increase, to a 5% increase, a widening of the trading band, and even some suggesting a possibility for yuan devaluation.

But it's important to peer through the Yuan issue into the underlying economics, rather than the politics, ultimately a freer exchange rate and more open economy will benefit everyone in the long run. Indeed as China bids to build financial centres and grow its influence and participation in global commerce the rationale fore keeping such controls in place will likely fade. But assuming that a change in exchange rate policy will lead to short term changes in trade dynamics between the US and China could be wishful thinking.

Econ Grapher Analytics
China Customs

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