News / Asia

China’s Trade Deficit Contracts Sharply

Workers rest near a loaded cargo ship at the Tianjin port in China. A Chinese state news agency said the country's trade surplus in January narrowed sharply to $6.5 billion, February 14, 2011
Workers rest near a loaded cargo ship at the Tianjin port in China. A Chinese state news agency said the country's trade surplus in January narrowed sharply to $6.5 billion, February 14, 2011

Stronger-than-expected imports caused China’s trade surplus to shrink in January.

A surge in Chinese exports in January was outweighed by a dramatic increase in imports, cutting the country’s internationally sensitive trade surplus to its lowest level in nine months.

The January trade surplus was $6.5 billion, compared with $13 billion in December. Exports grew by 38 percent from a year ago, but imports rose 51 percent.

But the figures might not be enough to silence critics who say the boom in the world’s second-largest economy comes at the expense of other countries.

Standard Chartered economist Jinny Yan in Shanghai, says the latest figures show China is trying to rebalance its economy toward greater domestic consumption. But Yan says the trade numbers are volatile and exports tend to rise as the year goes on as foreign companies increase orders.

"In the beginning of the year, obviously lots of manufacturers have been building up their stocks or raw materials,” Yan states. “Also today we saw another record interims [interim reports] of iron ore imports, so all this means is, yes - one or two months may get very narrow trade surplus, as we did last year around the same time, in March and April."

In addition, in January many factories closed for several days ahead of the Lunar New Year holiday earlier this month.

Economist Song Hong, the director of the Research Section of International Trade at the Chinese Academy of Social Science, agrees the figures do not indicate a long-term trend.

Song says the figures do not substantiate a huge change. He says China is still in a phase of industrialization and all industry sectors, especially in capital intensive industries, are still developing and expanding.

Despite the caution, the figures do provide an important symbolic lift to China ahead of a G20 meeting this week of finance ministers from the world's biggest developed and developing economies.

Many of China’s trade partners, including the United States and European Union, complain that it keeps it currency, the Yuan, undervalued, to make its exports cheaper. They also complain about import restrictions that they say make it hard for foreign companies to compete in China.

China says it is gradually allowing the Yuan to appreciate, and that it complies with its World Trade Organization obligations on imports.

The Chinese government has been reluctant to let the Yuan appreciate dramatically for fear that a fall in exports could lead to social unrest if factories lay off workers. But Beijing has said repeatedly it is trying to shift toward more domestic consumption to build its economy.

Some economists say the growth of imports and exports reflect well on both the Chinese and global economy. China’s gross domestic product last year grew by more than 10 percent, and making China the world’s second largest economy, replacing Japan.  

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