China's Trade Surplus Shrinks
As Demand for Exports Falters
Associated Press
March 10, 2008 4:00 a.m.
BEIJING -- China's politically sensitive trade surplus plunged in February as U.S. and European demand for Chinese goods weakened and the country's imports rose sharply, the government reported Monday.
The 63% drop in the trade gap from the year-earlier period reflected the impact of a U.S. slowdown while China's own expansion has stayed robust, driving demand for imported energy, consumer goods and industrial equipment.
China is under pressure from the U.S. and the European Union to ease import barriers and currency controls that they say are adding to its multibillion-dollar surplus. Some American lawmakers are calling for trade sanctions.
China's trade surplus in February totaled $8.6 billion, down from $23.7 billion in February 2007, the customs agency reported.
It was the smallest monthly surplus since March 2007, but that month's $6.9 billion gap was considered abnormally low in a fluke caused by changes in export-tax policy. It has been two years since China regularly posted monthly trade surpluses under $15 billion.
February's trade balance might have been affected by severe winter storms that disrupted shipping, caused shortages of food and raw materials and forced some factories to suspend production.
China's imports in February surged 35% to $78.8 billion from the year-earlier period, according to the customs agency.
Exports grew by 6.5% to US$87.4 billion -- a much slower growth rate than January's 26%. That could spur worries that slowing U.S. demand will hurt Chinese exporters and could wipe out thousands of jobs.
Chinese leaders say they aren't actively pursuing a large trade surplus and want balanced trade. The communist government is trying to encourage China's own consumers to spend more in hopes of reducing reliance on exports and industrial investment to drive growth.
February's monthly trade gap with the U.S., China's No. 2 trading partner, shrank 23% to $9.4 billion compared with the same month in 2007, the customs agency said. China's exports to the U.S. fell 5% in February to $16.4 billion, while imports of American goods jumped 33% to US$6.1 billion.
The surplus with the 27-nation EU, China's biggest trading partner, narrowed by 15% to $10 billion, data showed.
Chinese and EU officials are due to meet in April in Beijing to launch a regular high-level dialogue aimed at defusing trade tensions. China also conducts similar twice-year meetings with the U.S.
The U.S., EU and other trading partners are pressing Beijing to ease controls that they say keep its currency, the yuan, undervalued and give Chinese exporters an unfair price advantage.
Premier Wen Jiabao said last week that Beijing would pursue a more flexible exchange rate. The yuan has been allowed to rise by about 16% since mid-2005, and a faster increase would help to narrow the trade gap by making China's goods more expensive abroad and making foreign imports more attractive to Chinese consumers.
But concern over possible job losses has prompted trade officials to argue against letting the yuan strengthen faster.
The flood of import revenues also is straining the central bank's ability to rein in pressure for prices to rise. China's producer prices, a key inflation indicator, rose in February at the fastest rate in more than three years, suggesting consumers face more sharp price increases despite government efforts to cool the surge, according to separate data reported Monday.
Producer prices, which measure the cost of goods as they leave the factory, rose 6.6% in February over the year-earlier period, the National Statistics Bureau reported. It was the highest level since December 2004.
The spike in consumer prices has been driven by food costs and blamed on shortages of pork and other items. But Monday's data suggested pressure for across-the-board price rises is mounting as factories and households compete for resources amid a boom that saw China's economy grow by 11.4% last year.
The cost of basic oil products jumped 37.5% jump in February while that for steel products was up 29.6 percent, the statistics bureau said. Food-related raw materials rose 11%.
"Although the acceleration in inflation in China has been predominantly driven by food over the past year, the trends in PPI (producer price index) statistics suggest increasing inflationary pressure in the pipeline, in our view," Morgan Stanley said in a report to clients. "Managing inflation has become increasingly challenging for Chinese policymakers this year," the report said.
Communist leaders worry about possible political fallout and are trying to shield the public from price hikes that threaten to erode rising living standards. Bouts of high inflation in the 1980s and "90s sparked protests.
Beijing is trying to boost food production to ease shortages and has been nudging up interest rates, hoping to cool growth without causing the economy to tip into an abrupt slowdown.
State-set prices of gasoline, electric power and some other consumer necessities were frozen in September. In January, food producers were ordered to get official approval for any price increases. Fertilizer prices also have been frozen to protect farmers. But steel mills, factories and other producers must pay market prices for coal, iron ore and other raw materials.
Economists have warned that leaving price controls in place too long could add to inflation pressures by discouraging farmers and others from raising production, which would ease shortages and lower prices.
China suffered power shortages in February when the country's worst snowstorms in decades caught utility companies without adequate coal stockpiles after they cut purchases due to controls that barred them from passing on the rising cost to consumers. Steel mills and factories cut production, and the government was forced to organize emergency shipments of thousands of trainloads of coal to power plants.
Consumer inflation rose to 7.1% in January, its highest level in 11 year. Economists expect February's inflation rate, due to be reported Tuesday, to rise as high as 8.5% after snowstorms disrupted shipping and wrecked crops, worsening shortages of food and raw materials.
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