China posts trade deficit


China swung to a surprise trade deficit in February, its largest in seven years, as the Lunar New Year holiday dealt a sharper blow to export activity than had been expected.

It was China's first trade deficit since March last year and its biggest since February 2004.

The deficit will be welcome news on at least one front for the Chinese government, helping dampen inflationary pressure. Cash inflows from the country's vast trade surplus over the past few years have been a root cause of a recent run-up in prices.

With tightening policies beginning to have an impact, China is confident that it can hold inflation to an average of 4 per cent this year, Ma Jiantang, the government's statistics chief, said today.

His comments followed a report in an official newspaper that bank lending in February was much less than expected, indicating that Beijing has scored some success in reining in credit issuance, a crucial part of its campaign to control inflation.

Until that number is confirmed, though, attention will be squarely on China's precipitous drop in exports.

China exports grew 2.4 per cent in February from a year earlier, the customs agency said today, well short of forecasts for a rise of 26.2 per cent. Imports increased 19.4 per cent, missing market expectations of a 32.3 per cent increase.

The government has in the past pointed to a narrower trade surplus as evidence that it is making headway in tilting China away from excessive reliance on exports, a shift that is seen as a crucial part of putting the global economy on firmer footing.

But many economists cautioned against reading too much into one month's trade data, especially in the first quarter.

Chinese exports typically slump at the start of the year, with the country's factories shut or running at half speed for weeks because of China's New Year holiday, which fell in the first week of February.

China ran a $6.5 billion trade surplus in January and averaged $15 billion a month last year.

With import growth set to outpace export growth, China was hoping to narrow its trade surplus for the third straight year, commerce minister Chen Deming said earlier this week.

China's trade surplus was $183 billion last year, down from $196 billion in 2009 and a record $295 billion in 2008.