China's Surprising Trade Numbers

Posted by: Bruce Einhorn on March 11, 2011

By Dexter Roberts

Amongst the flood of economic statistics released this week by Beijing, the trade numbers certainly were some of the most notable. With imports up 19.4% and exports up just 2.4%, the least since 2009, China registered a $7.3 billion trade deficit, its first since last March (by contrast, the Bloomberg survey of economists had been predicting a surplus of $4.9 billion). So does this mean the world should expect China to start running a trade deficit regularly, a possibility that would likely lessen trade frictions, and might even ease global pressure on China to more quickly appreciate its currency, the yuan?

Not so fast. As numerous analysts pointed out, including Goldman Sachs and UBS, the unusual trade numbers have much to do with the seasonal effect of the Chinese New Year, which fell in early February this year. That holiday tends to have a much larger impact on exports than on imports, as factory owners and workers tend to take off not just the official holiday, but often the days surrounding Chinese New Year, too. “We believe the trade deficit is likely to be a temporary phenomenon distorted by the Lunar new Year,” write Yu Song and Helen (Hong) Qiao in a Goldman Sachs Asia Economics Data Flash dated March 10. “Distortions affect exports much more than imports because exporters have a much greater tendency to take extended holidays.” UBS for its part is predicting China will still run a $150 billion trade surplus for the whole year—“smaller than in 2010 but still sizable,” writes economist Tao Wang in a March 10 note.

Still, the latest trade numbers—and the likely smaller surplus this year—will provide ready ammunition for Beijing as it faces further criticism on the value of the yuan. Chinese officials already have been defending the country’s currency policy during the ongoing legislative session that closes Monday. “We’re likely to see some narrowing in the trade surplus, perhaps to the $150 billion range in 2011 from $180 billion last year,” says David Cohen of Asian Economics in Singapore in a Bloomberg article earlier today. “China will no doubt attempt to point to this number to deflect the criticism from the U.S. and other trading partners that the yuan is devalued.”

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