China reports trade deficit
First deficit in almost six years could impact decision on currency valuation.
Last Modified: 10 Apr 2010 11:28 GMT
China's deficit could ease pressure on Beijing to allow its currency to rise against US dollar [Reuters]

China has reported a $7.24bn trade deficit in March, its first since 2004.

The return to deficit after many years of surplus could ease pressure on China to allow the value of its currency - the yuan - to rise against the dollar.

The currency discrepancy has been a contentious issue between China, the US and other trading partners.

Chinese officials have resisted pressure to allow the yuan to rise in value, saying the trade sector remains weak and is also vulnerable to weaknesses elsewhere.

"China has to be prepared for the uncertainties on the global market as they would create problems and pressure for the nation," Chen Deming, the Chinese commerce minister, said prior to the release of trade figures on Saturday.

 Easily reversed?

"This news comes as a surprise, but it is important to put it into context," Patrick Chovanec, professor at Tsinghua University in Beijing, told Al Jazeera.

"Chinese trade is always seasonal and its not unprecedented for it to run a deficit in one month that is quickly reversed."

China's trading partners have been pressuring Beijingto allow the yuan to appreciate, saying it is undervalued and gives the country an unfair advantage by making its exports cheaper.

This was the first time that China imported more than it exported since it recorded a $2.26bn deficit in April 2004.

The March deficit was much larger than a forecast of $280m in a Dow Jones Newswire survey of 13 economists.

Following a surprise visitby Timothy Geithner, the US treasury secretary, to China on Thursday many expected Beijing to allow at least a modest change in the yuan's value.

Unfair trade advantage

China posted a global trade surplus of $14.5bn in the first three months of this year, down 76.7 per cent from the first quarter of 2009. The trade surplus was $7.6bn in February and the combined January-February surplus was $21.8bn.

China saw its exports plunge last year as demand evaporated in markets stricken by the global recession.

Critics say the Chinese government has kept the currency low to boost exports, resulting in massive trade surpluses with the US and Europe.

Obama, left, and Hu are expected to iron out numerous issues in Washington meeting [AFP]

However, economists say the deficit for March reflected relatively weak exports to the US and other major markets still struggling to recover from the recession.

Strong imports of commodities and components to fuel China's own booming industrial sector contributed to a 66 per cent jump in imports.

The Chinese currency has been effectively pegged against the dollar since mid-2008, following three years of gradual appreciation, due to the global financial crisis.

China has defended its exchange rate policy as necessary for the survival of Chinese manufacturers and supporting jobs growth, and last month's deficit was likely to bolster that argument.

Beijing has tried to play down expectations for a strong pick-up in exports this year, with Chen saying last month that it could take up to three years to return to pre-financial crisis levels.

Mend fences

In what is expected to be a bid to mend fences, Hu Jintao, the Chinese president, is to meet with Barack Obama, the US president, next week in Washington. The two sides look to end months of bickering which set in after Obama visited Hu in Beijing last November to discuss the value of the yuan and other issues.

Earlier this month, Geithner delayed a Treasury report that could have branded China a currency manipulator, a move that US lawmakers have been clamouring for, but which would have been met with contempt in Beijing.

"Certainly China and the United States may have different views on many issues, including the world economic crisis and trade, but we can't overlook the fact that both also have shared interests," Cui Tiankai, the Chinese vice foreign minister, said. 

Al Jazeera and agencies
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