China reports large trade deficit as imports surge

A petrol pump in China Demand for fuel in China has been rising as its economy continues to expand

China posted its largest trade deficit in at least a decade in February, after imports of commodities jumped as companies built up supplies.

The deficit was $31.5bn (£20bn) after imports rose 39.6% from a year earlier and exports rose 18.4%, the customs bureau said.

Analysts said the widening trade gap may signal deeper economic issues that China will need to address.

China has an export-led economy, but global economic growth remains slow.

Meanwhile, prices for many of the raw materials that China needs to fuel its growth are climbing.

Faced with these problems, many analysts are now predicting that China will have to do something to stimulate its domestic demand.

Anticipation

Last week, China said it was expecting its economy to grow by 7.5% in 2012, the lowest target it has set since 2004.

At the same time, it set an inflation target of 4%.

Price growth has been one of the biggest problems facing China over the past few years, not least because it imports most of the oil and commodities it consumes.

That is why, with crude oil climbing to close to $125 per barrel on the international exchange, many companies are stockpiling fuel in order to protect themselves from future price rises.

According to the trade figures released over the weekend, crude oil shipments hit a record-high of 5.95m barrels per day. China's imports of copper and iron ore also rose during the month.

"Imports were strong in February partly due to restocking among manufacturers in anticipation of rising commodity prices," said Hua Zhongwei of Huachuang Securities in Beijing.

'Slowly recovering'

Start Quote

Europe and the US are slowly recovering. We should not be too pessimistic about China's exports”

End Quote Hua Zhongwei Huachuang Securities

While China is looking to stoke domestic demand and give its economy better balance, it still relies heavily on its export and manufacturing sector.

But problems in its key markets such as the US and eurozone have raised fears about whether Beijing can sustain its export-led growth.

There have been concerns that the debt crisis in the eurozone and the high rate of unemployment in the US may hurt consumer sentiment and dent demand for Chinese goods.

However, analysts said while those fears still exist, there were signs that things were improving.

Data released last week showed that the US economy created 227,000 jobs in February, while the unemployment rate stayed at 8.3%, the lowest level in nearly three years.

At the same time, Greece struck a deal with banks and other lenders on Friday to restructure its debt, an important step in winning a final approval of its second bailout.

"Europe and the US are slowly recovering. We should not be too pessimistic about China's exports," said Mr Hua of Huachuang Securities.

"We will have a trade surplus for the whole year."

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