Exports to Imports

By HU YUE

Exports to Imports

By HU YUE

As China gears up to rebalance its economy, a key factor will be weaning its reliance on exports. The vigorous efforts are paying off as the country reported a trade deficit in the first quarter of this year.

China recorded a trade deficit of $1.02 billion between January and March this year,the first quarterly trade deficit in six years,said the General Administration of Customs(GAC). Earlier, China experienced quarterly trade de fi cits in the fi rst quarters of 2003 and 2004.

Exports climbed 26.5 percent year on year to $399.64 billion for the fi rst quarter of this year, while imports hit $400.66 billion,up 32.6 percent from the previous year.

The European Union remained China’s largest trade partner, followed by the United States and the Association of Southeast Asian Nations.

Zheng Yuesheng, Director of the Statistical Department of the GAC, said China imported more mechanical and electrical equipment, as well as cars, iron ores and soybeans than it did in the same period a year ago and that the prices of those commodities had all increased. Meanwhile, the Spring Festival holiday, which fell on February 2-8 this year, also helped shore up imports.

In March alone, the country’s foreign trade amounted to $304.26 billion, soaring 31.4 percent from a year ago. Of this total,exports edged up 35.8 percent year on year to $152.2 billion, while imports hit a record monthly high of $152.06 billion, up 27.3 percent. The March trade de fi cit came in at$140 million.

The cause

Lu Zhiming, a researcher at the Financial Research Center of the Bank of Communications, pointed to three major reasons for buoyant imports.

“Due to a relatively lower comparison base of last year, import growth picked up this year,” Lu toldEconomic Information Daily.

China’s imports rose $48.02 billion in March month on month this year, against$32.44 billion in the same period of 2010.

“A number of factories restarted manufacturing machines after the Spring Festival, delivering a boost to demands for commodities,” he said. “In addition,international commodity prices are on the rise. The crude oil price, in particular, is creeping higher due to the confrontation in Libya,” he added.

China’s iron ore imports soared 14.4 percent to 177 million tons in the fi rst three months of this year, while the average price rose by 59.5 percent year on year. The aver-

China covers ground as it attempts to balance imports and exports after a trade deficit in the first quarter age price of imported soybeans also went up 25.7 percent from a year earlier to $57.39 per ton in March, said the GAC.

Li Huiyong, a senior analyst with the Shenyin & Wanguo Securities Co. Ltd.,said a handful of policy incentives also encouraged imports as the country rolled up its sleeves to rebalance the foreign trade sector.

In recent years, China has adopted a series of measures to stimulate imports, including lower import tariffs, easier customs entry, financing support to importers and subsidies to imports of hi-tech equipment,said Zuo Xiaolei, chief economist at the China Galaxy Securities Co. Ltd.

In 2009, China replaced Germany as the world’s second largest importer, behind only the United States.

There is no need to worry about the trade deficits given the country’s deep foreign exchange reserves, said Li Daokui, member of the Monetary Policy Committee of the People’s Bank of China and Director of the Center for China in the World Economy at Tsinghua University. It should also help ease pressure for the country to appreciate the yuan, he said.

Surplus shrinks

Economists believe China can still reap a trade surplus for the entire year, though it may shrink.

Zheng of the GAC said the quarterly de fi cit is only temporary.

“China will remain a surplus trader this year thanks to its strong manufacturing strength and competitive edge of its exports,”he said.

Mei Xinyu, an associate researcher with the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce (MOFCOM), agreed. “China’s exporters are regaining their lost ground,drawing strength from the recovery of Western markets,” Mei toldBeijing Review.

With imported hi-tech equipment,Chinese manufacturers are more able to upgrade their products and increase exports,said Mei.

LIU QUANLONG

LI ZIHENG

“The surplus, however, is bound to decrease as global commodity prices continue heading north,” said Lu Zhengwei,chief economist with the Industrial Bank Ltd.

Global economic recovery and massive monetary expansion in the developed economies are the biggest drivers of price surges,he said.

Minister of Commerce Chen Deming predicted a smaller trade surplus for this year at a press brie fi ng earlier this year.

“China has been enhancing efforts to rebalance its economy and pave the way for imports to outpace exports,” said Chen.“Uncertainties are also hanging over export prospect, including simmering protectionism and debt woes in Europe.”

“The terms of trade are getting worse for China on surging oil prices, so China’s trade surplus could shrink much faster than the market has expected,” said Lu Ting,an economist with the Bank of America Merrill Lynch. “Monthly deficits are still possible, but for the full year, China’s trade will most likely remain a surplus. We now see more downside risk to our forecast of$150 billion trade surplus in 2011.”

In an earlier report, Merrill Lynch estimated every $1 increase in oil price per barrel may cut China’s annual trade surplus by $1.9 billion.

In 2010, the country reported a trade surplus of $183.1 billion, compared with$295.5 billion in 2008 and $196.1 billion in 2009.

Wei Jianguo, Secretary-General of the China Center for International Economic Exchanges, expected less than $100 billion in trade surpluses for 2011.

“Appreciation pressures of the yuan and domestic labor cost inflation are casting an ominous shadow over exports,” he said.

“The export outlook may get better in the latter half of this year,” said Wang Qing,a Morgan Stanley economist in Hong Kong.“Since 2002, China has been reaping two thirds of its annual trade surplus in the latter half of each year.”

Rebalancing commitment

With the trade surplus diminishing,China’s attempts to rebalance the economy are yielding results.

“Current account surplus is expected to contribute 0.3-0.5 percentage points of China’s GDP growth this year, down from 0.7 percentage points in 2010,” said Li Huiyong.

“The biggest risks facing policymakers are inflation and overly tightening policies that may put a drain on the economy,” said Li. “But now it appears that both risks are under control since the economy is steering a steady course of growth.”

The GDP is likely to grow 9.6 percent this year, with the in fl ation problem held at bay, added Li.

Cao Yuanzheng, chief economist with the BOC International Holdings Ltd.,forecast the Chinese economy will grow around 9 percent this year, with no more than 0.4 percentage points coming from net exports.

Stephen Green, a Shanghai-based economist with the Standard Chartered Bank, said the export sector is no longer a growth engine for the Chinese economy.

Exports’ contribution to China’s nominal GDP growth will decrease from nearly 3 percentage points in 2010 to 2 percentage points this year, he said.

The quarterly de fi cit is a signal China’s trade imbalance is easing and its policies of stabilizing exports while propelling imports has taken effect, said Feng Lei, a research fellow with the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences.

But the country still has a long way to go to rebalance its economy since the de fi cit is in large part a result of surging global commodity prices, he said.

More efforts are still needed to improve the country’s foreign trade structure, such as increasing imports of advanced technologies and exports of modern services, said Zhang Yansheng, Director of the Research Institute of Foreign Economic Relations under the National Development and Reform Commission.

“While it continues promoting imports,China will spare no effort to bolster the quality and value-added of exports, and at the same time heighten brand recognition of Chinese products,” said Yao Jian, spokesman of the MOFCOM.