Money Matters, Simplified.
China reports $1.02bn trade deficit in Q1
by Anupreet Kaur - April 11, 2011 - comments
Though the demand from its pivotal markets, the United States and Europe, has decreased due to the global financial crisis, the demand is likely to escalate in the future.
China, world's second biggest economy, has reported a trade deficit in its first quarter.
According to information revealed by the General Administration of Customs, China had a trade deficit of $1.02 billion in the first three months, first time since first quarter in 2004.
China was facing a trade deficit of 7.3 percent trade deficit till February, however, a meager trade surplus of $140 million in March aided the country to combat the deficit to some extent.
Reasons for trade deficit
The country had to face deficit due to surging prices of imported commodities, rising labor costs, inflation of food products, escalating prices of basic raw materials.
“China's exports are likely to remain strong in coming months with recovering demands in the United States and Europe, and China will report a trade surplus in coming months.”--Wang Hu an economist with Guotai Jun'an Securities in Shanghai
In March, the imports in China rose 27.3 percent, increase from 19.4 percent in February.
The exports in China surged 35.8 percent, up from 2.4 percent in February.
No doubt, the annual surplus is likely to be effected by this trade deficit, but analysts are still positive about the results as it's believed that many manufacturers import raw materials between March to May to manufacture products, including air conditioner and household appliances, for exports.
China to boost domestic demand
Instead of just focusing on exports, China in now focusing on domestic demand in order to recover from the deficit.
Though the demand from its pivotal markets, the United States and Europe, has decreased due to the global financial crisis, the demand is likely to escalate in future.
As quoted by BBC, Wang Hu an economist with Guotai Jun'an Securities in Shanghai, said, “China's exports are likely to remain strong in coming months with recovering demands in the United States and Europe, and China will report a trade surplus in coming months.”
Faster yuan appreciation needed
In order to overcome the global imbalances, China trading partners have suggested faster Yuan appreciation as they believe that a weaker currency has led to cheaper export of China goods.
As China believes that immediate increase in Yuan will be harmful for the economy, it has planned to increase its price with some time gaps, which will consequently make imports cheaper.
“Even though the exchange rate is only slowly appreciating, strong inflation, especially labor costs, is making the rebalancing happen," Isaac Meng of BNP Paribas told the BBC.