China sees first quarterly trade deficit in seven years

Worker at a factory in China The manufacturing sector has been one of the biggest drivers of exports in China

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China has posted its first quarterly trade deficit in seven years, as it continues efforts to rebalance its economy.

The deficit for the first three months of the year stood at $1.02bn (£622m), according to the latest data by the General Administration of Customs.

For the month of March, the country reported a tiny trade surplus of $140m.

China has been trying to boost domestic demand after criticism of its export-led growth policy over the past years.

However, demand from its key markets like the US and Europe has slowed down, as those economies recover from the effects of the global financial crisis.

China has said that it is working towards increasing domestic demand and becoming less reliant on exports to sustain its growth.

While the current numbers may suggest a step in that direction, analysts say they are not a definitive indicator of a turn-around in China's trade.

"China's exports are likely to remain strong in coming months with recovering demands in the United States and Europe, and China will report a trade surplus in coming months," said Wang Hu, of Guotai Jun'an Securities in Shanghai.

Start Quote

Even though the exchange rate is only slowly appreciating, strong inflation, especially labour costs, is making the rebalancing happen”

End Quote Isaac Meng BNP Paribas
Japanese trade

There are concerns that the devastation caused by the earthquake and tsunami in Japan may hit Chinese industry.

"As the world's third largest economy and the biggest source of Chinese imports, Japan is set to affect part of China's foreign trade," said Zheng Yuesheng, statistics chief of the customs administration.

Analysts also warn that until the full extent of the damage caused to Japan's economy and businesses becomes clear, it will be difficult to predict how long the impact on other countries will last.

"People are still trying to assess the impact of Japan, so it's not easy to say whether this pace can be maintained," said Isaac Meng of BNP Paribas.

"It is likely to slow down much more in the second quarter," he added.

However, as Japan's economy and businesses look to rebuild and get back on track, analysts say that demand for Chinese goods will surge.

"From a longer-term view, the reconstruction in Japan will mean huge demand for Chinese products," Mr Wang said.

Exchange rate
Chinese coins and notes China's policy on yuan pricing has been a topic of debate among major economies

China has been criticised over its policy on the pricing of its currency.

Beijing has been accused of keeping the yuan artificially low in order to support its export sector.

A weaker currency makes China's goods cheaper, giving its exporters an edge over their international competitors.

China has said that a sudden appreciation of its currency would be harmful to its economy.

However, there has been a slight appreciation of the yuan in the last 12 months, during which it has gained more than 4% against the US dollar.

On Monday, the People's Bank of China set the price of the yuan at a historic high of 6.5401 against the US dollar.

Analysts say that as the currency appreciates, it is making imports into China cheaper and helping the government in its fight against inflation.

They add that a combination of all these factors is helping China move towards its goal of rebalancing its economic growth policy.

"Even though the exchange rate is only slowly appreciating, strong inflation, especially labour costs, is making the rebalancing happen," Mr Meng said.

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