China Posts 1st Monthly Trade Deficit In 3 Years

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China unexpectedly posted its first trade gap in three years in February as a construction boom pushed imports much higher than expected and as increasing US protectionist rhetoric casts a spotlight on the export giant’s trade position.

The upbeat import reading reinforced the growing view that economic activity in China picked up in the first two months of the year, adding to a global manufacturing revival.

That could give China’s policymakers more confidence to press ahead this year with oft-delayed and painful structural reforms such as tackling a rapid build-up in debt.

“We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient,” Julian Evans-Pritchard at Capital Economics said in a note.

The surprise monthly deficit also comes as US President Donald Trump focuses increased attention on China’s large and persistent run on trade surpluses with the US and as global efforts to ward off trade protectionism face growing difficulties.

China’s imports surged 38.1% from a year earlier, the biggest increase since February 2012, official data showed yesterday, while exports unexpectedly fell 1.3%.

That left the country with a trade deficit of $9.15bn for the month, the General Administration of Customs said. Most analysts, however, attributed the rare trade gap to distortions caused by the long Lunar New Year celebrations, which began in late January this year but fell in February in 2016.

Many businesses shut for a week or more and factory production and port operations can be significantly affected.

“All deficits since 2005 have been in either the Lunar New Year month or in one of the months around the Lunar New Year month,” ING’s chief Asia economist Tim Condon wrote in a note.

“Like those earlier ones, we expect February’s to be a one-off and the full-year trade surplus will be close to 2016’s 3.4tn yuan.”

Still, combined January and February data showed China’s trade rose 13.3% from the same period a year earlier, suggesting real improvement in underlying demand at home and abroad.

That also jives with strong China factory activity surveys which showed growth in both output and orders is accelerating.

“Looking ahead, we expect external demand to remain fairly strong during the coming quarters which should continue to support exports,” Evans-Pritchard said.

But he added that it was unlikely the current pace of import growth can be sustained as the impact of higher commodity prices will start to drop out of the calculations in coming months.

Analysts polled by Reuters had expected February shipments from the world’s largest exporter to have risen 12.3% in dollar-terms, an improvement from a 7.9% rise in January.

Imports had been expected to rise 20%, after rising 16.7% in January.

That would have produced a trade surplus of $25.75bn in February, roughly half that recorded in January.

China’s February trade surplus with the United States fell to $10.42bn, the smallest since February 2014.

China exports to the US fell 4.2%, while its imports from the US rose 38%.

China’s first-quarter economic growth could accelerate to 7% year-on-year, from 6.8% in the last quarter, economists at OCBC wrote in a note on Monday, while adding that the pace may start softening in spring.

As the government ramps up infrastructure spending and developers rush to complete new housing projects, steel mills are consuming more iron ore and coking coal to meet demand.

With the economy on much steadier footing than a year ago, the government has trimmed its economic growth target to around 6.5% this year, Premier Li Keqiang said in his work report at the opening of parliament on Sunday.

The economy grew 6.7% last year, the slowest pace in 26 years.

As with last year, China has not set a target for exports in 2017, underlining the uncertain global outlook and fears of rising US trade protectionism, but Li said China will take steps to steady exports this year.

Trump hasn’t made good yet on his campaign pledges of greater protectionist measures in the early days of his presidency, but analysts say the spectre of deteriorating US-China trade and political ties is likely to weigh on confidence of exporters and investors worldwide. The US trade deficit jumped to a near five-year high in January, pointing to slower economic growth and posing a challenge for the Trump administration.

The US reported its trade gap with China rose 12.8% to $31.3bn in January, with China-bound exports dropping 13.4%.

Elsewhere, Trump administration trade adviser Peter Navarro said on Monday that the $65bn US trade deficit with Germany was “one of the most difficult” trade issues.

Meanwhile, the world’s financial leaders are preparing to meet next week for the G20 finance ministers in Germany, the first gathering attended by representatives of the Trump administration.

A draft communique showed finance ministers and central bank heads from G20 countries may no longer explicitly reject protectionism or competitive currency devaluations, promising only to keep an “open and fair international trading system”.

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China posts 1st monthly trade deficit in 3 years
China posts first monthly trade deficit in three years as imports soar
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China posts first monthly trade deficit in three years as imports soar
China posts first monthly trade deficit in 3 yrs as imports soar
China posts first monthly trade deficit in three years as imports soar
China posts first monthly trade deficit in 3 years as imports soar