China posts first monthly trade deficit in three years
Deficit comes as tensions with US grow
China unexpectedly posted its first trade gap in three years in February as a construction boom pushed imports much higher than expected and as increasing US protectionist rhetoric casts a spotlight on the export giant’s trade position. The upbeat import reading reinforced the growing view that economic activity in China picked up in the first two months of the year, adding to a global manufacturing revival.
That could give China’s policymakers more confidence to press ahead this year with oftdelayed and painful structural reforms such as tackling a rapid build-up in debt. “We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient,” Julian Evans-Pritchard at Capital Economics said in a note. The surprise monthly deficit also comes as US President Donald Trump focuses increased attention on China’s large and persistent run on trade surpluses with the US and as global efforts to ward off trade protectionism face growing difficulties.
China’s imports surged 38.1 percent from a year earlier, the biggest increase since February 2012, official data showed yesterday, while exports unexpectedly fell 1.3 percent. That left the country with a trade deficit of $9.15 billion for the month, the General Administration of Customs said. Most analysts, however, attributed the rare trade gap to distortions caused by the long Lunar New Year celebrations, which began in late January this year but fell in February in 2016.
Many businesses shut for a week or more and factory production and port operations can be significantly affected. “All deficits since 2005 have been in either the Lunar New Year month or in one of the months around the Lunar New Year month,” ING’s Chief Asia Economist Tim Condon wrote in a note. “Like those earlier ones, we expect February’s to be a one-off and the full-year trade surplus will be close to 2016’s 3.4 trillion yuan.”
Still, combined January and February data showed China’s trade rose 13.3 percent from the same period a year earlier, suggesting real improvement in underlying demand at home and abroad. That also jives with strong China factory activity surveys which showed growth in both output and orders is accelerating. “Looking ahead, we expect external demand to remain fairly strong during the coming quarters which should continue to support exports,” Evans-Pritchard said. But he added that it was unlikely the current pace of import growth can be sustained as the impact of higher commodity prices will start to drop out of the calculations in coming months.
Analysts polled by Reuters had expected February shipments from the world’s largest exporter to have risen 12.3 percent in dollar-terms, an improvement from a 7.9 percent rise in January. Imports had been expected to rise 20 percent, after rising 16.7 percent in January. That would have produced a trade surplus of $25.75 billion in February, roughly half that recorded in January. China’s February trade surplus with the United States fell to $10.42 billion, the smallest since February 2014. China exports to the US fell 4.2 percent, while its imports from the US rose 38 percent.
Commodity boom
China’s first-quarter economic growth could accelerate to 7 percent year-on-year, from 6.8 percent in the last quarter, economists at OCBC wrote in a note on Monday, while adding that the pace may start softening in spring. As the government ramps up infrastructure spending and developers rush to complete new housing projects, steel mills are consuming more iron ore and coking coal to meet demand. With the economy on much steadier footing than a year ago, the government has trimmed its economic growth target to around 6.5 percent this year, Premier Li Keqiang said in his work report at the opening of parliament on Sunday. The economy grew 6.7 percent last year, the slowest pace in 26 years. —Reuters