MercoPress. South Atlantic News Agency

China posts surprise quarterly trade deficit of 1.02 billion USD, first in six years

Chinese Premier Wen Jiabao says appreciations of the Yuan must be gradual

China on Sunday reported a surprise quarterly trade deficit of 1.02 billion US dollars, the first in six years as it settles to rebalance its export oriented economy to boost domestic consumption in the next five years.

The 1.02 billion USD deficit from January to March this year was in contrast to trade surplus of 13.91 billion in the first quarter of last year, according to figures released by the General Administration of Customs of China.

China's exports increased by 26.5% year on year to 399.64 billion USD in the first three months this year but imports soared 32.6% to 400.66 billion USD, raising a question whether China's dream run of exports surplus during the last decade is set to hit a rough patch.

From January to March, the total value of imports and exports increased 29.5% year-on-year to 800.3 billion, said the customs administration, adding that China reported a small trade surplus of 140 million USD in March, on the basis of a deficit of 7.3 billion USD in February.

The trade deficit apparently came too early as China from 2011 launched its 12th five year plan to end its export oriented policy to post qualitative growth by boosting domestic consumption.

The news of trade deficit has come at a time when China is facing criticism from US and EU of keeping the value of its currency, the Yuan, artificially low to increase profits of its exports besides making its goods cheaper.

This week China will also host the BRISC summit (Brazil, Russia, India, China and the latest incorporation, South Africa), and it is anticipated Brazil will question the “flood” of cheap Chinese imports that is severely hurting its manufacturing sector.

China in the last decade has rapidly become the commodity rich South America’s second largest trade partner and significant investor.

China says it is gradually letting its currency appreciate, while resisting pressure for a quick appreciation.

Last month, Chinese Premier Wen Jiabao defended his government policy saying the appreciation of the RMB (Renminbi or Yuan) must be gradual, because it affects jobs and raises pressure on enterprises and employment.

“We will continue to stick to the reform of the formation mechanism of the RMB exchange rate,” he said, adding, Chinese currency has appreciated 57.9% from the level of 1994.

“Our reforms have aimed to adopt a market-based, managed floating exchange rate regime which is tied to a basket of foreign currencies instead of pegging to the US dollar,” Wen said.

He also defended his government's decision to lower GDP target to 7% for the next five years, scaling it down from the present double digit growth rate. China plans to achieve a high quality and efficient annual growth rate of 7% during the 12th Five-Year Plan, starting from this year, which is not easy by any means, said Wen.