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Rare trade deficit in China; conflicting opinions as to the reasons

Thursday, March 10th 2011 - 21:20 UTC
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Two weeks Luna New Year holiday is one of the reasons  Two weeks Luna New Year holiday is one of the reasons

Chinese trade figures released Thursday show a surprising deficit for February, as export growth slowed and import numbers remained strong. Chinese statistics released Thursday show that the country registered a trade deficit in February of 7.3 billion US dollars.

It was China’s first trade deficit since March last year, and the largest in seven years. But the country is expected to return to a trade surplus this month. Exports grew at 2.4% in February from the same month a year ago. Imports on the other hand increased by 19.4%.

Li Wei, with Standard Chartered Bank, says the February data is “heavily distorted” because of the Lunar New Year holiday.

“Most traders frontload their trading activities in January, in preparation for the Chinese New Year, when most of the people simply go home, celebrating for almost two weeks,” said Li.

Economic activity in China slows before and after Chinese New Year, which this year was February 6.

Commerce Minister Chen Deming indicated this week that China wants to narrow its overall trade gap for this year.

Chen says China’s policies this year will be guided by wanting to stabilize exports, expand imports and decrease the trade surplus.

Surging exports have largely contributed to China’s rapid economic growth. But, as demand slows in key markets like the United States and Europe, China has said it will make up for the lost demand by focusing on trying to increase domestic consumption.

However some analysts say that the latest numbers may point to deeper problems not least the fact that domestic demand is not picking up as much as first hoped. Imports are considered a good measure of domestic demand. In February, while they were expected to grow by more than 30%, they rose by 19.4%.

“It is definitely not a good sign,” said Xu Biao of China Merchants Bank. Mr Xu said that the latest figures may show that demand in mainland China is faltering. “Imports have dropped significantly, and it points to a serious weakening in domestic economic activity,” he underlined.

Categories: Economy, International.

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