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China records a rare trade deficit

China has recorded its first quarterly trade deficit in seven years, a result that will allow Beijing to deflect international pressure for a faster appreciation of the yuan.

The nation swung to a deficit of US$1.02 billion in the first three months of the year from a surplus of US$13.91 billion a year ago, as imports grew faster than exports on the back of rising commodity prices, the Administration of Customs announced yesterday.

The news came as a breather for the government, which has been under fire from Washington, which alleges the yuan is being kept artificially low against the US dollar to help China gain an unfair trade advantage by making its exports more competitive.

Some economists, however, said the unusual swing in the balance of trade could be short-lived, and forecast that China would return to a surplus this month.

'We think the first quarter's deficit is temporary,' UBS economist Wang Tao said before the release of the data. 'The sharp rise in import prices in recent months was an important factor behind the trade deficit.'

She added that the yuan would continue to appreciate but at a more gradual pace - about 5 per cent this year. The yuan has gained 0.99 per cent since the beginning of this year to 6.5353, on Friday, against the US dollar.

Zheng Yuesheng, statistics chief with the Administration of Customs, told state television that the first-quarter deficit would probably be temporary but that the full-year trade surplus would drift lower this year from last year.

Wang anticipates a full-year surplus of US$145 billion this year, down from US$183 billion last year.

In the first three months of this year, imports jumped 32.6 per cent to US$400.66 billion and exports were up 26.5 per cent to US$399.64 billion.

In March, however, exports reversed the quarterly trend and rose faster than imports, in a sign that the deficit might already be in the process of correcting itself.

March's exports leaped 35.8 per cent to US$152.2 billion while imports rose 27.3 per cent, to a record US$152.06 billion.

This left a trade surplus of US$140 million in March, against a US$7.3 billion deficit in February.

But Mizuho Securities economist Shen Jianguang said he expected the mainland's robust domestic demand and the Ministry of Commerce's recent tax incentives to boost imports and shrink the surplus.

He pointed out that the stubbornly high consumer inflation and excess liquidity in the market had resulted in 'a real appreciation' of the yuan.

This helps ease external pressure to lift the exchange rate and provides conditions for a free float of the currency, he said.

Morgan Stanley economist Wang Qing, who had forecast a March deficit of US$5.4 billion, said the balance of trade would probably return to a surplus this month.

Some economists said the trade data showed the mainland's economic transformation was gaining steam as it shifted from reliance on exports to a more sustainable, consumption-driven direction.

They said rising commodity prices, wages and labour shortages naturally help push manufacturing activities to jump up the value chain.

The Administration of Customs said the prices of commodities including iron ore, crude oil and soya beans had increased sharply, helping to fuel the deficit.

In March, iron ore imports increased 14.4 per cent in volume but its price ballooned 59.5 per cent to US$156.5 per tonne; while soya bean imports fell 0.7 pre cent in volume but import prices jumped 25.6 per cent, it said.

Trade turnaround

Last year China's first-quarter trade surplus was US$13.91 billion; this year its deficit was, in US dollars: $1.02b

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