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China Posts Q1 Trade Deficit

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In the first quarter of 2011, China posted a trade deficit, something it has not done since 2004. In Q1, the nation imported $1.02 billion more than it exported.

According to Reuters, the General Administration of Customs reported the change, as well as a small trade surplus for the single month of March. It logged a surplus of $140 million, but that was in the wake of a deficit for February of $7.3 billion.

March’s exports were up some 35.8% from the previous year, and imports rose 27.3% from the previous year. Economists were expecting that the YOY figure for exports would be 21% and for imports 19.5%, with an expected deficit of $4.2 billion.

While some of the deficit can be chalked up to the normally slow first part of the year for China’s economy, the change also reflects the strenuous efforts Beijing has made to stem its burgeoning economy and the rise of inflation. But it also reflects the fact that China is already the world’s largest export economy and as such has far more room to grow in its demand for imports.

According to Isaac Meng, economist with BNP Paribas in Beijing, the change shows that the Chinese economy is reducing its dependence on exports and thus is moving in a more sustainable direction. He was quoted as saying, "Even though the exchange rate is only slowly appreciating, strong inflation, especially labor costs, is making the rebalancing happen."

While officials have said they would purchase more foreign products to drive down the massive surplus, the factor currently having the most effect on the Chinese economy is the rise in price of raw materials and energy they import for manufacturing; those "primary products" increased by 29.7% in Q1. Iron ore alone skyrocketed 59.5% in Q1.

Japan is also expected to have a measurable effect on the Chinese economy, as imports of auto parts and machinery from Japan will affect Chinese manufacturing and in turn the Japanese will need to import more from China to offset their own reduced production as they rebuild in the wake of the disaster.