MercoPress. South Atlantic News Agency

China reports first trade deficit in 6 years and drastic drop in bank lending

Rising prices of raw materials blamed for deficit

China reported a rare monthly trade deficit for the first time since May 2004. China’s foreign trade was up nearly 43% in March to over 231 billion USD, out of which exports accounted for about 112.1 billion and imports about 119.4 billion.

In the same month, China's trade surplus with the United States was down 4% and over 13% with the European Union, compared to March 2009.

Chinese officials have blamed the 7.2 billion monthly deficit on the rising volumes and prices of raw materials across the world, such as coal, iron ore, crude oil and copper, that the country has to import to sustain its blistering economic growth.

Even as Chinese imports have surged, exports still remain weak, especially to the Western markets. It may be up to three years before the country's exports reach the levels they were before the global economic crisis, according to some Chinese politicians.

China's monthly trade deficits are likely to continue in the remaining months of the first half of 2010 and will possibly improve in the second half, China's People's Daily said, quoting Yao Jian, spokesman of China's Ministry of Commerce.

In recent months, the Chinese government has come under increasing pressure from the US government for keeping the Yuan artificially depressed to help boost its exports. China's ministry of commerce has cited the latest trade deficit figures to argue that no change is needed in the country's currency regime.

In related news lending by Chinese banks fell sharply in the first three months of the year after the government's efforts to clamp down on new loans proved successful.

Banks lent 2.6 trillion Yuan (381 billion USD) between January and March, a 43% drop on the 4.6 trillion Yuan they lent a year earlier, the central bank said.

The state is trying to curb lending to prevent the economy from overheating and prices from rising too fast. It has set a limit for lending for the whole of 2010 of 7.5 trillion Yuan. This is well below the 9.6 trillion Yuan lent last year. Much of this lending boom was sparked by government stimulus measures.

At the end of 2008, the government announced a 4 trillion Yuan stimulus plan to boost the domestic economy. Partly as a result of the stimulus measures, the economy grew by an impressive 8.7% in 2009.

The government is now keen to rein in spending to cool growth. It is also concerned about inflation, which hit a 16-month high of 2.7% in February.

In January, the government ordered banks to hold more cash in reserve, while state media reported that it had ordered banks to stop lending altogether for the last 10 days of the month.

The central bank also said on Monday that China's foreign exchange reserves hit a record 2.5 trillion at the end of March.