UPDATE 2-Rare China trade deficit "won’t derail" yuan rise

* China’s first deficit since 2004 due to oil, raw
materials

* Both export and import levels higher than March 2008

* China customs official says deficit a blip

* Analysts don’t see trade gap as barrier to yuan reform

By Zhou Xin and Alan Wheatley

BEIJING, April 10 (BestGrowthStock) – China recorded its first
monthly trade deficit in six years, but a customs official
called the shortfall a blip and economists doubted it would
stand in the way of a resumption in the yuan’s rise before
long.

China’s $7.24 billion deficit in March, the first time the
trade balance has been in the red since April 2004, mainly
reflected strong imports of oil, raw materials and cars, the
General Administration of Customs said on Saturday.

Significantly, the level of both exports and imports was
higher than in March 2008, before the global credit crunch
reached a climax.

China’s leaders have said they want to be sure that exports
have made a sustained recovery before unwinding anti-crisis
policies, including a freeze of the yuan’s exchange rate
against the dollar imposed in July 2008.

“The trade deficit will likely be cited as evidence that
trade flows are adjusting despite the lack of change in China’s
currency, but we do not think it will be enough to derail the
move to a stronger yuan in the months ahead,” Brian Jackson, an
economist with Royal Bank of Canada, wrote in a note.
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For possible scenarios for yuan policy, see [ID:nSGE638076]

For China’s trade with its key partners, see
[ID:nTOE63900C]
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Beijing is under intense pressure, especially from the
United States, to scrap the yuan’s peg. Washington complains
that the yuan is now seriously undervalued, handing Chinese
exporters an unfair trading advantage.

The issue will be on the agenda when President Hu Jintao
meets President Barack Obama in Washington next week.

Central bank governor Zhou Xiaochuan declined to discuss
the yuan (CNY=CFXS: ) during a panel discussion at the annual
Boao Forum for Asia on the southern island of Hainan.
[ID:nBJC002546]

Henry Paulson, the former U.S. Treasury Secretary, told the
conference it was in China’s interests to have a more flexible
exchange rate to dampen inflation and help shift growth towards
domestic consumption and away from exports.

“You have to recognise that in the United States it is a
symbol for China’s commitment to continued reform. My message
to my Chinese friends is this is something that needs to be
taken seriously and managed so there is continuing progress,”
he said.

JUST A BLIP?

Paulson’s successor, Timothy Geithner, paid a hastily
arranged visit to Beijing on Thursday on his way home from
India, fanning speculation that a resumption if the yuan’s
climb could happen soon.

Gao Yi, an economist with Orient Securities in Shanghai,
said the March trade deficit may serve as another excuse for
Beijing to delay a rise in the yuan, but he said China was
likely to let the currency start appreciating either this
quarter or next.

“As a large portion of Chinese imports is used for
processing trade, strong imports now will translate into strong
exports a few months later,” Gao said.

Indeed, Zheng Yuesheng, the customs agency’s statistics
chief, said China was likely to remain a surplus country over
the long run. March’s deficit was a blip, he told state
television. [ID:nBJC002545]

DEARER IMPORTS

If the deficit is a blip, it should not make a big
difference to the decision about when and how to allow the yuan
to resume its climb, said Mark Williams, an economist with
Capital Economics in London.

“This move could happen any time, but the most likely
window is still June, when officials will have been able to
review two months data unaffected — as the March trade figures
apparently were — by the volatility around Chinese New Year,”
he said in a note.

Williams said export factories were slow to get back to
work last month after February’s long holiday break. So, while
exports rose 24.3 percent in March from a year earlier to
$112.11 billion, imports surged 66.0 percent to $119.35
billion.

For China’s trade with its key partners, see
[ID:nTOE63900C]

On a month-on-month basis, China’s exports rose 18.6
percent in March from February, while imports rose 37.3
percent.

The jump in imports partly reflected higher commodity
prices. The average cost of imported iron ore was 20.7 percent
higher in the first quarter than a a year earlier, customs
said.

Liu Yuanchun, a professor with Renmin University in
Beijing, said the import surge may ease a touch in April as
buyers may hold off in anticipation of a stronger yuan, which
would make the imports cheaper.

“But in my view, China might not go back to the pre-crisis
yuan policy for another three months,” Liu said.
Money

(Additional reporting by David Stanway and Langi Chiang in
Boao; Editing by Alex Richardson)

UPDATE 2-Rare China trade deficit “won’t derail” yuan rise