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Higher Commodity Prices Hit Beijing's Trade Figures
China on Sunday registered its first quarterly trade deficit in seven years, reflecting the rising prices of imported commodities and highlighting concerns that China's foundations of growth may be weakening.
China's trade reversal comes as finance ministers and central bankers gather this week in Washington for a conference of the Group of 20 largest economies and a meeting of the International Monetary Fund. The ministers are wrestling with turmoil in the Middle East, Japan and parts of Europe as well as soaring prices for oil and other commodities, and have looked to China to be an engine of growth.
World Bank chief economist Justin Yifu Lin says China has accounted for about a quarter of global economic growth between 2000 and 2009, edging out the U.S. for the top spot. Most economists predict another banner year for Beijing and forecast further growthespecially with a boost from the U.S. economy's gradual recoveryalthough slightly less than last year's 10.3%.
But the Chinese trade deficit suggests that commodity prices surging at faster than anticipated rates could blunt some of the gains.
Since the start of the year, J.P Morgan has increased its forecasts for global inflation in the second quarter of 2011 by about one percentage point to 3.6%, and this week reduced its forecast of global growth in the first six months of 2011 by nearly one percentage point to 3.2%, on an annualized basis.
In March, China managed to eke out a small trade surplus, the government said Sunday, as the trade balance swung to a $139 million surplus in March from a $7.3 billion deficit in February.
China's imports in March rose 27.3% from a year earlier, up from February's 19.4% rise. Exports rose by 35.8% from a year earlier, up from February's 2.4% increase, which was suppressed due to the Lunar New Year holiday that month, when many exporters shut down production.
For the first quarter, however, China registered a deficit of $1.02 billion, the first time China reported a quarterly trade deficit since the first three months of 2004.
For the full year, China is still widely expected to post a significant trade surplus. Its foreign trade tends to go through a cycle in which companies stock up on imported raw materials early in the year; those are then processed into exports.
But the annual surplus is likely to narrow over the coming year as a slowly strengthening currency, rising labor costs and general inflation are making exports somewhat more expensive, while rising commodity prices are inflating the costs of imports. Wang Tao, China economist for UBS, estimates China's trade surplus this year will be around $150 billion, which would be down nearly a fifth from last year's level and mark the third straight year of decline.
The Chinese government has made scant progress on tapping the country's potentially vast domestic market. The percentage of the economy accounted for by consumer spending has fallen and is about 35% of GDPabout half the level of the U.S.
The ability of China to continue its 30-year record of 10% annual growth faces other challenges, including a roughly 5% annual rate of inflation. That is nearly twice the pace of a year ago, and is widely expected to move higher in the next few months despite the Chinese central bank's recent tightening of interest rates and bank reserve requirements.
A bursting of China's property bubble would be especially damaging. In China's three dozen largest cities, prices have shot up by about 50% over the past two years, according to Dragonomics Research, a Beijing consulting firm. Ordinary Chinese have become real-estate speculators, figuring that real-estate prices can only go up. State-owned industries are also big speculators, using loans they received from state-owned banks in late 2008 to fight the global recession to invest in urban real-estate.
China is trying to let the air out of the real-estate bubble by increasing mortgage down payments, but that may not be enough. Among other factors, local governments have an incentive to boost real-estate development because they rely on land sales to fund their operations.
China specialist Nicholas Lardy says a real-estate collapse could shave 2.5 percentage points off Chinese growtha deeper hit than the country took at the start of the global financial crisis.
Other parts of China's growth model may also be losing steam. China has grown rapidly by huge investments in highways, airports, shipping terminals, mines and steel mills and by helping exporters through low wages and an undervalued currency.
Although investment has risen to nearly 50% of gross domestic product, job creation is limping along at 1% a year.
A wild card in China's growth is the prospect of political unrest. One reason the government is focusing on inflation is because anger over high prices has often preceded unrest, notably during the Tiananmen Square protests of 1989.
In the two years following Tiananmen, China's growth rate fell sharply as questions about whether the government continued to back reforms led to economic stagnation.
Write to Bob Davis at bob.davis@wsj.com and Aaron Back at aaron.back@dowjones.com
link:
China Posts First Quarterly Trade Deficit in Seven Years - WSJ.com
China on Sunday registered its first quarterly trade deficit in seven years, reflecting the rising prices of imported commodities and highlighting concerns that China's foundations of growth may be weakening.
China's trade reversal comes as finance ministers and central bankers gather this week in Washington for a conference of the Group of 20 largest economies and a meeting of the International Monetary Fund. The ministers are wrestling with turmoil in the Middle East, Japan and parts of Europe as well as soaring prices for oil and other commodities, and have looked to China to be an engine of growth.
World Bank chief economist Justin Yifu Lin says China has accounted for about a quarter of global economic growth between 2000 and 2009, edging out the U.S. for the top spot. Most economists predict another banner year for Beijing and forecast further growthespecially with a boost from the U.S. economy's gradual recoveryalthough slightly less than last year's 10.3%.
But the Chinese trade deficit suggests that commodity prices surging at faster than anticipated rates could blunt some of the gains.
Since the start of the year, J.P Morgan has increased its forecasts for global inflation in the second quarter of 2011 by about one percentage point to 3.6%, and this week reduced its forecast of global growth in the first six months of 2011 by nearly one percentage point to 3.2%, on an annualized basis.
In March, China managed to eke out a small trade surplus, the government said Sunday, as the trade balance swung to a $139 million surplus in March from a $7.3 billion deficit in February.
China's imports in March rose 27.3% from a year earlier, up from February's 19.4% rise. Exports rose by 35.8% from a year earlier, up from February's 2.4% increase, which was suppressed due to the Lunar New Year holiday that month, when many exporters shut down production.
For the first quarter, however, China registered a deficit of $1.02 billion, the first time China reported a quarterly trade deficit since the first three months of 2004.
For the full year, China is still widely expected to post a significant trade surplus. Its foreign trade tends to go through a cycle in which companies stock up on imported raw materials early in the year; those are then processed into exports.
But the annual surplus is likely to narrow over the coming year as a slowly strengthening currency, rising labor costs and general inflation are making exports somewhat more expensive, while rising commodity prices are inflating the costs of imports. Wang Tao, China economist for UBS, estimates China's trade surplus this year will be around $150 billion, which would be down nearly a fifth from last year's level and mark the third straight year of decline.
The Chinese government has made scant progress on tapping the country's potentially vast domestic market. The percentage of the economy accounted for by consumer spending has fallen and is about 35% of GDPabout half the level of the U.S.
The ability of China to continue its 30-year record of 10% annual growth faces other challenges, including a roughly 5% annual rate of inflation. That is nearly twice the pace of a year ago, and is widely expected to move higher in the next few months despite the Chinese central bank's recent tightening of interest rates and bank reserve requirements.
A bursting of China's property bubble would be especially damaging. In China's three dozen largest cities, prices have shot up by about 50% over the past two years, according to Dragonomics Research, a Beijing consulting firm. Ordinary Chinese have become real-estate speculators, figuring that real-estate prices can only go up. State-owned industries are also big speculators, using loans they received from state-owned banks in late 2008 to fight the global recession to invest in urban real-estate.
China is trying to let the air out of the real-estate bubble by increasing mortgage down payments, but that may not be enough. Among other factors, local governments have an incentive to boost real-estate development because they rely on land sales to fund their operations.
China specialist Nicholas Lardy says a real-estate collapse could shave 2.5 percentage points off Chinese growtha deeper hit than the country took at the start of the global financial crisis.
Other parts of China's growth model may also be losing steam. China has grown rapidly by huge investments in highways, airports, shipping terminals, mines and steel mills and by helping exporters through low wages and an undervalued currency.
Although investment has risen to nearly 50% of gross domestic product, job creation is limping along at 1% a year.
A wild card in China's growth is the prospect of political unrest. One reason the government is focusing on inflation is because anger over high prices has often preceded unrest, notably during the Tiananmen Square protests of 1989.
In the two years following Tiananmen, China's growth rate fell sharply as questions about whether the government continued to back reforms led to economic stagnation.
Write to Bob Davis at bob.davis@wsj.com and Aaron Back at aaron.back@dowjones.com
link:
China Posts First Quarterly Trade Deficit in Seven Years - WSJ.com
