China trade deficit dips as export growth slows

China reported an unexpected $7.3 billion trade deficit, the biggest in seven years, buttressing the government’s case against US arguments for faster gains in the yuan.

Exports rose 2.4 per cent in February from a year before, the least since 2009 as Lunar New Year holidays disrupted shipments, and imports climbed 19.4 per cent, customs bureau data showed today. Central bank advisor Li Daokui said that the full- year trade surplus will shrink from the 2010 level.

Yuan forwards dropped after today’s release as investors pared bets on the appreciation of China’s currency against the dollar. Premier Wen Jiabao aims to spark domestic demand and reduce the role of exports in the economy through wage increases, rather than the exchange-rate gains sought by the Obama administration.

“Today’s data will help Wen to defend China’s yuan policy during the press conference that will close the annual meeting on the National People’s Congress in Beijing,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group in Hong Kong who formerly worked for the World Bank. Wen’s briefing is on March 14.

China’s slowdown compared with India’s 50 per cent surge in exports last month, reported today. At the same time, India’s $23.6 billion of outbound shipments were less than a quarter of the value of China’s.

Non-deliverable yuan forwards were at 6.4395 per dollar as of 6.58 pm in Hong Kong, after trading at 6.4170 before the data were released. That level indicates the currency may gain about 2.3 per cent in the next 12 months.

Stocks slide
The Shanghai Composite Index closed 1.5 per cent lower.

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.

“I think this is probably the end of the currency wars,” Tim Condon, Singapore-based head of Asia research with ING Groep, told Bloomberg Television. He said the deficit was “a move everyone wants to see” and addressed key concerns of the Group of 20 nations relating to economic imbalances.

Brazil Finance Minister Guido Mantega popularised the term “currency war” last year to describe nations securing export advantages by suppressing the values of their currencies.

Boosting consumption
Speaking in Beijing, Li said the annual surplus may slide to $150 billion this year, from $183 billion in 2010 and the record $295 billion in 2008. Chinese officials this week affirmed policies to boost domestic consumption, including raising minimum wages an average of 13 per cent a year in the five-year plan running through 2015.

The swing in February to a trade deficit may aid central bank officials working to prevent an excess of cash in the financial system from worsening inflation that has already breached the government’s 4 per cent target for 2011. Pressure for more increases in banks’ reserve requirements may ease, Bank of America-Merrill Lynch said in a note.