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China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil

Shangai Port Worker
A worker walks near a bulk carrier cargo ship docked at an iron ore transfer and storage center operated by the Shanghai International Port Group in Shanghai, China. Photographer: Qilai Shen/Bloomberg

March 11 (Bloomberg) -- China had its largest trade deficit since at least 1989 last month as Europe’s sovereign-debt turmoil damped exports and imports rebounded after a weeklong holiday.

The shortfall was $31.5 billion, the customs bureau said yesterday. Imports rose 39.6 percent from a year earlier, after a 15.3 percent slump in January, while exports increased 18.4 percent, the bureau said. Data in the first two months are distorted by the timing of the Lunar New Year holiday, which fell in January this year and February in 2011.

The data, along with lower-than-forecast inflation, industrial output and retail sales reported March 9, raise the odds Premier Wen Jiabao will ease policies to support growth in the world’s second-biggest economy. Commerce Minister Chen Deming’s warning last week that boosting trade by 10 percent this year will require “arduous efforts” may also signal a slower pace of yuan gains as policy makers seek to aid exporters.

“Easing inflation and weakening economic activity send a strong signal for further loosening in the upcoming months,” said Shen Jianguang, Hong Kong-based chief greater China economist for Mizuho Securities Asia Ltd.

The government is likely to cut banks’ required reserves in March, the third reduction in four months, while appreciation in the yuan will be “difficult,” said Shen, who previously worked for the International Monetary Fund and European Central Bank.

Weaker Yuan

China has allowed its currency to weaken against the dollar this year, aiding exporters, as Europe’s debt crisis clouds the outlook for overseas sales. Chen, speaking to reporters March 7, said the yuan exchange rate is in a reasonable range.

The nation may “appropriately” widen the yuan’s trading band to better reflect market supply and demand, People’s Bank of China Governor Zhou Xiaochuan said, according to a March 5 report by the official Xinhua News Agency.

The deficit was the first in a year and largest in data compiled by Bloomberg going back to 1990. The previous record shortfall during that time was $7.87 billion in February 2004. It compared with the median estimate for a $5.35 billion deficit in a Bloomberg News survey of 28 economists. Analysts forecast a 31.1 percent gain in exports from a year earlier and a 31.8 percent increase in imports.

Some analysts lowered estimates for export growth after Chen said March 7 that outbound shipments rose about 7 percent over the first two months of the year, a figure confirmed in yesterday’s release. Nomura Holdings Inc. forecast a gain of 18.7 percent, while Societe Generale SA projected 18 percent.

Seasonal Adjustments

The relatively fast nominal growth in trade resulted from the timing of the Lunar New Year, the customs bureau said. Including seasonal adjustments, exports in February rose 4 percent from a year earlier while imports gained 9.4 percent, it said.

Asian stocks gained March 9 on speculation China’s government will take steps to boost growth. The MSCI Asia Pacific Index rose 0.7 percent, while China’s benchmark Shanghai Composite Index increased 0.8 percent. The yuan rose 0.09 percent to 6.3107 against the dollar.

February exports totaled $114.5 billion, while imports were $146 billion. China’s shipments to the U.S. climbed 22.6 percent from a year earlier to $19.4 billion after a 5.4 percent gain the previous month, the data show. Imports from the U.S. jumped 43.4 percent to $11 billion.

Overseas sales to the European Union, China’s biggest market last year, rose 2.2 percent to $19.4 billion, after a 3.2 percent drop in January.

Copper Imports

Imports of copper by China last month were the second-highest on record, the data showed, after the weeklong holiday slowed customs clearance in January.

Net crude oil imports increased to a record to meet rising demand as farmers prepare for the planting season and the government adds to emergency stockpiles. The average price of February’s crude imports was $112.39 a barrel, up from $92.28 in the same month last year, according to Bloomberg calculations.

Wen, in his state-of-the-nation work report to lawmakers at the National People’s Congress last week, said the government will “carry out timely and appropriate anticipatory adjustments and fine-tuning” of fiscal and monetary policies.

Suntech Power Holdings Co., the largest maker of solar panels, said increased competition and government subsidy cuts will lead to a first-quarter drop in shipments, according to a statement March 8 from the Wuxi, China-based company. Deliveries in the first quarter will decline by about 30 percent from the fourth quarter, it said.

The nation will still see a sizable trade surplus for the full year, as the deficit early in 2012 is largely seasonal, according to Song Yu, a Beijing-based economist with Goldman Sachs Group Inc.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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