China Posts A $31.5 Billion Trade Deficit, Adding To A Slew Of Bad Economic Data

Last Updated: 13, March 2012

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Hard landing, or soft landing? China’s trade deficit hit $31.5 billion in February as its exports slowed to a crawl, highlighting global concerns over the cooling down of the world’s second largest economy.

China’s trade data, released by the General Administration of Customs, revealed that February exports from China fell by 23.6 percent from the previous month, but rose 18.4 percent from the previous year.

While it was the third time China’s trade balance went negative in the last two years, this deficit dwarfs its 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.

[quote] According to official news agency Xinhua, February’s data marked the country’s largest monthly trade deficit in 22 years. [/quote]

The numbers add to an already bleak outlook for China. This year, China has revised its 2012 expected growth target downward to 7.5 percent, a sacrifice that Chinese Premier Wen Jiabao says is necessary to contain inflation.

Inflation figures for China showed a dramatic cooling, receding to a 20-month low of 3.4 percent in February compared with a year ago.

Chinese bank officials are now hinting that the renminbi may not longer be significantly undervalued, after six years of slow but gradual appreciation.

Speaking at the National People’s Congress, the deputy central bank governor Yi Gang said:

[quote] This trade deficit is a positive sign that the renminbi exchange rate is close to its equilibrium level. [/quote]

Paul Mackel, head of Asian currency research at HSBC, agreed:

[quote] Fundamental surpluses have continued to narrow and the renminbi is closer to the equilibrium value than ever before. This structural change in China’s balance of payments has profound implications for the currency. [/quote]

Many have been quick to point out that China’s deficit is largely due to the recession in Europe, since the continent is the biggest market for Chinese goods.

Yet, early evidence is starting to show that the Chinese economy is starting to cool, after a decade of double-digit growth.

Should the Chinese state return to currency tweaks to boost its competitive edge in international trade, analysts say the move would most certainly renew trade tensions with the United States.

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