Quarterly trade deficit 'shows China's economy is rebalancing'

China recorded a rare trade deficit in the first quarter of the year in what experts claimed was a sign that the economy was moving in a more sustainable direction by becoming less reliant on exports.

From January to March, China imported $1.02 billion (623 million) more than it exported, marking its first quarterly trade deficit since 2004, according to official figures published yesterday by the General Administration of Customs.

Isaac Meng, an economist with BNP Paribas in Beijing, said the trade numbers showed that China's economy was evolving.

China's decreasing reliance on exports is an essential ingredient in the rebalancing that analysts say is needed to put the global economy on to a more stable footing.

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

Zheng Yuesheng, statistics chief with the customs administration, said the first-quarter deficit was likely to be "temporary", but added that the full-year trade surplus would be smaller in 2011 than 2010.

In March alone, China reported a tiny trade surplus of $140m, following a $7.3bn deficit in February. China's exports were up 35.8 per cent in March from a year earlier, while imports rose 27.3 per cent.

Economists had expected exports to rise 21 per cent year-on-year and imports to increase 19.5 per cent year-on-year, producing a trade deficit of $4.2bn.

China imported more cars, iron ore and soya beans than it did a year ago, with prices of those commodities shooting up.

Analysts expect a Chinese global trade surplus this year of $160bn-$200bn, but say that should narrow if oil and commodity prices stay high. Last year, China ran a trade surplus of about $16bn a month.

The first-quarter shortfall is partly a seasonal issue because Chinese exports tend to be slow early in the year. But it also illustrates the progress that China is making towards having a more balanced trade relationship with the rest of the world.

Less about any specific policy, this is a reflection of basic economic reality.China already is the world's biggest exporter and so has little scope to increase its exports further, while its demand for imports is increasing in leaps and bounds alongside its ultra-fast growth.

China has faced calls from the United States, the European Union and others to let its yuan currency appreciate more quickly as a way to cut its yawning trade surplus.

Beijing has opted for gradual nominal appreciation - the yuan has gained just 4.5 per cent against the dollar since being depegged last June - but rising costs are denting demand for Chinese exports.

On the import side, officials have repeatedly vowed to buy more foreign products to reduce the country's huge trade surplus.

For now, though, soaring global commodity costs were the more immediate factor driving up China's import bill.

Prices of "primary products" - raw materials and energy - jumped 29.7 per cent in the first quarter, significantly pushing up the cost of Chinese imports.

For instance, import prices of iron ore, a key input for Chinese steelmakers, jumped 59.5 per cent in the first quarter from a year earlier, the customs administration said.

In another example, soya bean import prices - China is the world's biggest buyer - rose 25.7 per cent in the first quarter, though absolute import volume fell 0.7 per cent year on year.

Wang Hu, an economist with Guotai Junan Securities in Shanghai, said Chinese imports were always strong in the first quarter as domestic firms make purchases for full-year investment and production plans.

Wang added: "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."

The biggest question mark hanging over China's trade activity is the extent to which Japan's earthquake, tsunami and nuclear crisis will cause trouble.