China Reports Unexpected Trade Deficit as Export Growth Cools

China reported an unexpected $7.3 billion trade deficit; the nation’s biggest in seven years, in February after a Lunar New Year holiday disrupted exports.

Outbound shipments rose an annual 2.4 percent, the slowest pace since November 2009, and imports climbed 19.4 percent, according to a report on the customs bureau website today.

Yuan forwards weakened after the announcement, which may deflect international pressure for China to strengthen its currency to redress global economic imbalances. Commerce Minister Chen Deming said March 7 that it’s “totally unreasonable” to say the Yuan is undervalued after U.S. Treasury Secretary Timothy Geithner repeated calls for a faster pace of appreciation.

Cutting the nation’s surplus “would bolster the Chinese government’s argument that it is gradually rebalancing the economy,” David Cohen, a Singapore-based economist for Action Economics who has previously worked for the U.S. Federal Reserve, said before today’s release.

Non-deliverable forwards were at 6.4245 per dollar as of 11:16 a.m. in Hong Kong, after trading at 6.4170 before the data were released. That level indicates the currency may gain about 2.3 percent in the next 12 months.

Today’s number compared with a $6.5 billion surplus in January. The median estimate in a Bloomberg News survey of 21 economists was for a $4.9 billion excess of exports over imports in February. The nation’s last deficit was $7.2 billion in March 2010.

Seasonal Distortion

Economists combine Chinese data for the first two months of the year to eliminate distortions caused by the annual holiday. On that basis, the nation had a deficit of about $890 million, compared with a surplus of about $22 billion a year earlier. Higher commodity prices boosted imports over the period.

The median forecast of economists in a Bloomberg News survey was for a 27 percent increase in February exports from a year earlier and a 33 percent gain in imports. Outbound shipments rose 38 percent in January, while imports surged 51 percent.

Source – Bloomberg