Financial Schools Reviews

() - China’s $7.2 billion trade deficit in March, the first monthly shortfall in six years, may be a temporary blip and the surplus will reappear soon, economists said.

“We maintain our view that China’s trade balance surplus in 2010 should improve compared to 2009 as real export growth is currently running ahead of import growth,” Danske Bank analyst Flemming Nielsen said. The analyst attributed the trade deficit to the usual seasonality and seasonal distortions from the Chinese New Year Holiday.

“It does not change our view that China is soon likely to move on the exchange rate,” Nielsen said.

The swing in the trade balance to a deficit in March was no major surprise as policy makers have already foreseen a shortfall for the month. Chinese Premier Wen Jiabao and Minister of Commerce Chen Deming revealed two weeks ago that the trade balance in March would probably show a deficit. Chen had stated that the trade deficit is temporary, signaling that the trade balance is not linked to the exchange rate level.

China faces immense pressure from the International Monetary Fund, the U.S. and the European Union to let the yuan rise. The country is accused of artificially keeping the yuan rate low to bolster its exports.

But, China stuck to its stance of stable exchange rate policy and denied the charges made by the U.S. that the yuan exchange rate is the reason for China’s trade surplus and the U.S.’s trade deficit. China has been maintaining a fixed exchange rate against the U.S. dollar since July 2008, when the global financial crisis exploded.

The trade deficit “should not make a big difference to the decision about when and how to allow the renminbi to resume its climb against the US dollar,” Capital Economics’ Mark Williams said. The economist noted that this move could happen any time, but the most likely window is still June, when officials must able to review two months’ data unaffected – as the March trade figures apparently were – by the volatility around Chinese New Year.

“China’s trade surplus will soon reappear,” Williams wrote in a note today. “Indeed, the surplus that matters most politically – that with the US – is already rising again and not far off a record high.”

“Over the last 12 months, China’s surplus with the world outside the US has shrivelled to nothing, while that with the US has barely fallen at all,” the economist pointed out.

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