10-year high for trade deficit

PUBLISHED : Sunday, 11 March, 2012, 12:00am
UPDATED : Sunday, 11 March, 2012, 12:00am

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China recorded its biggest trade deficit in a decade last month as imports grew much faster than exports amid uncertainties in the global economy, according to official data.

Analysts said the weak export performance came on top of disappointing economic data released on Friday, and raised the likelihood of more monetary easing by Beijing soon.

The world's largest exporter posted a trade deficit of US$31.48 billion in February after reporting a US$27.28 billion surplus in January, the General Administration of Customs said on its website yesterday.

The deficit was the first in a year and largest in a decade, Xinhua said. In February last year, a deficit of US$7.3 billion was recorded.

Yifan Hu, chief economist with Haitong International Research, said export growth in February was much slower than market expectations.

Junwei Sun, a China economist with HSBC, said yesterday's trade data, plus figures released on Friday showing weaker than expected growth in industrial production and retail sales in February, reinforced the need for policy easing. The data underscored a continuing slowdown in domestic demand, Sun said.

'Today's trade numbers reinforce the need for easing efforts to be stepped up in coming months. We expect cuts of at least another 100 basis points in [banks'] reserve requirement ratio in the first half of this year.' The reserve requirement is the proportion of cash that lenders must hold back to cover possible losses.

Since December, China's leaders have been warning that the world's second-largest economy faces an 'extremely grim and complicated' global outlook, worse than in 2008 when the US subprime mortgage crisis spread globally.

The government has also taken steps to fine-tune its macroeconomic tightening, introduced two years ago to ensure stable growth, as the global economy changed. Since then the central bank has announced two reserve ratio cuts.

Beijing has targeted an annual rise of 10 per cent in foreign trade this year, down from last year's 22.5 per cent rise. Minister of Commerce Chen Deming said on Wednesday that this target was attainable.

Liao Qun, senior vice-president and chief economist of Citic Bank International, said that given the faster-than-expected slowdown, a further easing of monetary policy seemed likely soon. 'Another cut in banks' reserve requirement ratio is likely to take place in the coming days,' Liao said on Friday.

Exports rose 18.4 per cent year on year to US$114.47 billion, while imports soared 39.6 per cent to US$145.96 billion last month.

For January and February combined, exports rose 6.9 per cent while imports rose 7.7 per cent, producing a combined trade deficit of US$4.25 billion, the customs office said.

Hu said the shortfall was mainly caused by weak demand in Europe, a trend that would continue. But he said China was still likely to run a trade surplus for the full year. Manufacturers often stock up on imported components early in the year that are converted into exports later, leading to seasonal deficits early on.

Beijing and Washington have long disputed their huge trade imbalances, with US politicians and manufacturers accusing Beijing of keeping the yuan's value artificially low to help Chinese exporters. But China's trade deficit has fallen in recent years, leading officials to argue that the country is rebalancing away from exports and the yuan is appreciating.

$31.5b

The trade deficit, in US dollars, China recorded in February

- It compares with a US$27.3 billion surplus in January

 

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