The prospect that China may report its first monthly trade deficit in six years could offer an unexpected boost to the nation's position in the increasingly heated international debate over its currency policy.
Top Chinese officials have in recent days said trade numbers for March could show China imported more than it exported this month-its first monthly deficit since April 2004. The official numbers for March aren't scheduled to be reported until April 10, but the rush to add supportive data to their talking points highlights how Chinese officials are stepping up their defense of a policy that has drawn widespread criticism from trading partners.
Officials from the U.S. and Europe have argued that China's persistently large trade surpluses show its currency, which has been held fixed to the U.S. dollar since mid-2008, is undervalued to give Chinese exporters a competitive advantage. Chinese officials counter by pointing out that their nation's trade surplus has declined sharply in the past year, and argue that China's large stimulus program helped it keep buying from the rest of the world, thereby supporting global economic growth.
China's economic growth last year 'was achieved mainly by relying on domestic demand,' Premier Wen Jiabao said in a meeting with foreign executives Monday. China's trade surplus thus has been narrowing, and in the first one-third of March, China ran a trade deficit of about $8 billion, he said.
'To be honest with you, I am pretty happy about this development,' Mr. Wen said.
The premier's remarks followed comments from Minister of Commerce Chen Deming at a conference Sunday that he expected a trade deficit for the full month of March. Mr. Chen argued that the strong growth in China's imports helps foreign businesses, and he noted that in the first two months of 2010, imports from the U.S. were up 37%, from Europe up 35% and from Japan up 48%. China's trade surplus for January and February already was down 50% from a year earlier.
An actual trade deficit in March, rather than just a smaller surplus, could give more weight to China's arguments that the global economy is improving without an appreciation of the yuan. China's trade surpluses stand out during the current global downturn because they show the country is adding to its own growth by selling to other countries. By the same token, a deficit would be a welcome sign that other countries are boosting their growth by selling to China.
'A trade deficit in March, if realized, would be positive and likely would help reduce international political pressure on China in relation to currency and trade,' Barclays Capital economists said in a note Tuesday. Offshore currency markets were pricing in marginally less future appreciation of the yuan Tuesday after Mr. Wen's comments were publicized by state media.
Still, most economists don't expect any trade deficit to last long, and China is still likely to post a large trade surplus this year. The World Bank forecasts that China's current-account surplus, the broadest measure of its trade position, will increase this year to $304 billion, after falling sharply to $284.1 billion in 2009 from a record $426.1 billion in 2008.
Many U.S. lawmakers are pressing President Barack Obama's administration to take action against China on the currency. The U.S. Treasury Department is scheduled to issue its semi-annual report on currency policies on April 15, in which it must decide whether to formally label China a currency manipulator. Some senators also have introduced legislation that could lead to tariffs on Chinese goods if Beijing doesn't change its policy.
But domestic politics in China don't make it easy for Mr. Wen's administration to move on the currency. Export manufacturers are major employers and have a strong voice in China's commerce ministry. They argue that a strengthening of the currency would derail their nascent recovery.
'We hope our government can bear the pressure and stabilize the exchange rate,' said Bai Ming, a deputy general manager of Zhejiang Mingfeng Car Accessories Co., which makes car cushions and covers.