Op-Ed Contributors

Deficit fears a non-issue

By Mei Xinyu (China Daily European Weekly)
Updated: 2011-04-22 10:36

China registered a trade deficit of $1.02 billion (700.3 million euros) in the first quarter of this year, the first in six years, because of a slowdown in exports amid shrinking global demand. But despite that, it is likely to maintain an annual trade surplus for the full year.

Though varying factors across the world, including the United States government's deficit, the lingering European sovereign debt crisis and the unrest in the Middle East and North Africa, have heightened the sense of economic uncertainty, they are unlikely to derail global recovery. Besides, China's exports will probably rebound thanks to the strong demand from Japan, which is struggling to emerge from the impact of the earthquake, tsunami and the nuclear plant meltdown.

The increase in the amount and prices of imported bulk commodities played a major role in increasing China's imports and thus the quarterly trade deficit. According to the General Administration of Customs, China's iron ore imports grew by 14.4 percent to 180 million tons in the first quarter, while the average price rose by 59.5 percent year-on-year to $156.5 a ton. Soybean imports dropped by 0.7 percent to 10.96 million tons, but its average price increased by 25.7 percent to $573.9 a ton.

With the political unrest in Libya driving oil prices to a two-and-half-year high of $108 a barrel, there are fears that China's growing expenditure on primary commodities could go through the roof. But even if primary commodity prices rise to such an extent that China's trade balance is reversed, as it was in the first quarter, they will not pose a big problem provided other factors remain unchanged.

Why? On the one hand, prices of China's manufactured commodities will increase in accordance with the prices of imported primary commodities, which in turn will increase the country's exports value. On the other, global demand for primary commodities will probably drop because of rising costs, reducing their prices in the process. In either case, China can maintain its annual trade surplus.

Moreover, given the unexpected pressure of inflation and asset bubbles, the world's major economies will probably loosen their monetary policies, which will curb the inflated prices of bulk commodities.