China's Trade Deficit Surprise

 
 

China this week surprised many analysts when it announced a small trade deficit for the first quarter, its first since 2004. The deficit – about $1 billion – was down largely to higher prices for food, oil and other commodities.

I asked IHS Global Insight’s China analyst, Alistair Thornton, for his take on the figures.

He told me that the headline data could suggest some significant progress on the rebalancing agenda, but he added that it remains far too early to make such a bold call.

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‘February’s deficit was large enough to pull the whole quarter into deficit, and with March data showing a return to surplus – albeit a rather mild one – it’s clear where the trend is going. 2011 should see a surplus of around $250 billion, at around 3.5 percent of projected GDP, although the rather weak Q1 is indicative of the downside risks China faces internationally, and as such, the full-year surplus might be smaller than initially expected,’ he told me.

‘The Customs authority reported a quarterly deficit of $1.02 billion, with imports totaling $400 billion and imports tallying $399 billion. However, as has been pointed out, the addition of the three individual months trade data come in under the $1 billion mark, although there may be some statistical tweaks for seasonal factors.

‘Considering the deficit in Q1 has been caused primarily by rising international prices rather than weak exports, there will be increased pressure to notch-up the renminbi appreciation schedule.’

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