China's Trade Surplus Plunges 63 Percent

China's Trade Surplus Plunges 63 Percent

March 15, 2008 0 Comments

China’s February Trade Surplus plunged 63 Percent to $8.6 billion, down from $23.7 billion in February 2007, according to customs agency data.

It was the smallest monthly surplus since March 2007, but that month’s $6.9 billion gap was considered abnormally low in a fluke caused by changes in export-tax policy. It has been two years since China regularly posted monthly trade surpluses under $15 billion.

China’s imports in February surged 35 percent to $78.8 billion from the year-earlier period, according to the customs agency.

Exports grew by 6.5 percent to $87.4 billion – a much slower rate than January’s 26 percent. That could spur worries that slowing U.S. demand will hurt Chinese exporters and could wipe out thousands of jobs.

Chinese leaders say they are not actively pursuing a large trade surplus. The communist government is prodding China’s consumers to spend more in hopes of reducing reliance on exports and industrial investment to drive growth.

February’s monthly trade gap with the United States, China’s No. 2 trading partner, shrank 23 percent to $9.4 billion compared with the same month in 2007, the customs agency said.

China’s exports to the United States fell 5 percent in February to $16.4 billion, while imports of American goods jumped 33 percent to $6.1 billion.

The surplus with the 27-nation European Union, China’s biggest trading partner, narrowed by 15 percent to $10 billion, data showed. Chinese and EU officials are due to meet in April in Beijing to launch a regular high-level dialogue aimed at defusing trade tensions. China holds similar twice-year meetings with the United States.

The U.S., EU and other trading partners are pressing Beijing to ease controls that they say keep its currency, the yuan, undervalued and give Chinese exporters an unfair price advantage.

Premier Wen Jiabao said last week that Beijing would pursue a more flexible exchange rate. The yuan has been allowed to rise by about 16 percent against the U.S. dollar since mid-2005, and a faster increase would help to narrow the trade gap by making China’s goods more expensive abroad and making foreign imports more attractive to Chinese consumers.

But concern over possible job losses has prompted trade officials to argue against letting the yuan strengthen faster.

Consumer inflation rose to 7.1 percent in January, its highest level in 11 years, and is expected to surpass that when figures for February are reported this week.

Also Monday, the government said producer prices, a key inflation indicator, rose 6.6 percent in February over the year-earlier period.

The spike in inflation has been driven by food costs, but the data Monday showed prices of oil, iron and other raw materials rising sharply, suggesting that pressure was increasing for across-the-board price hikes was increasing.

The above news commentary neglects an important fact. China suffered the worst blizzard in history last month, which shut down half the country’s transportation system and reduced output of coal and electricity. This severely limited the ability of China’s companies to get their products to port. I expect a big rebound in exports for March now that things are working normally again.

JR

John Rutledge

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