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China's Big Trade Deficit May Kill Yuan Appreciation

China's Big Trade Deficit May Kill Yuan Appreciation
Photograph by ImagineChina/AP Images

China exported nearly $2 trillion worth of stuff in 2011, more than any other country in the world. Which is why the recent dip in its trade balance is so surprising—not so much because it happened, but because of how big it was. Over the weekend, China reported a $31.5 billion trade deficit for February. While it was the third time China’s trade balance had gone negative in the last two years, this deficit dwarfs the country’s previous ventures into the red. China posted a $7.3 billion trade deficit in February 2011 and a $7.2 billion deficit in March 2010.

The first two months of China’s balance-of-trade data tend to be cloudy because the period includes Chinese New Year, the country’s biggest holiday, when people take a week off work and exports tend to fall. That said, February’s deficit was China’s biggest since December 1989, when it soared to $66 billion. Still, most China analysts hesitate to read too much into the February number. “I’m not so sure that this reveals a new reality of any kind,” says Steven Dunaway, an adjunct senior fellow for international economics at the Council on Foreign Relations. “What is clear is that their export growth is slowing down.”