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February 14, 2011 6:04 am
China’s trade surplus fell last month to its lowest level since April 2010, as commodity prices pushed China’s imports close to record levels.
The trade surplus fell from $13.1bn in December to $6.5bn in January, a reduction likely to be welcomed in Beijing ahead of the meeting of G20 finance ministers in Paris later this week.
The data paint a relatively optimistic picture of global economic recovery, as demand for Chinese goods pushed exports up 38 per cent compared with the previous year.
China’s trade surplus has narrowed in recent months thanks to strong domestic demand. Monday’s data showed that imports had grown 51 per cent by value in January compared with the year before.
Rising prices for commodities such as iron ore and copper – which together accounted for more than $14bn of imports in January – have boosted the nominal value of China’s imports.
“Commodity price increases have contributed a lot to the import strength,” says Ken Peng, China economist at Citi. He estimates that half of China’s monthly increase in imports was the result to price rises. “Two products alone contributed about $3.1bn of the narrowing in the surplus: petroleum and iron ore.”
Economists cautioned, however, that the Chinese new year holidays could easily distort trade data for the first two months of the year.
“What happens this month won’t necessarily happen in February so it’s not something we can get too excited about,” said Paul Cavey, economist at Macquarie. “After Chinese new year, import demand will begin to come off a little bit because of tightening ... the trade surplus will remain an issue.”
China’s trade surplus and current account balance are set to be key topics for the G20 meeting in Paris this week. At the meeting, finance ministers will discuss reforms to the international monetary system and ways to prevent global economic imbalances.
Brian Jackson, senior emerging market strategist at the Royal Bank of Canada, said the smaller surplus was unlikely to affect the debate over Chinese currency.
“China’s exporters continue to benefit from a currency that has actually weakened over the last six months in trade-weighted terms, despite making modest gains against the dollar,” Mr Jackson wrote in an e-mail. “This suggests there is still plenty of scope for Beijing to pick up the pace of currency appreciation over 2011, particularly given the increased policy focus on curbing price pressures.”
Christine Lagarde, France’s finance minister, told the Financial Times that the gathering would include a “lively debate” on China’s role in the international monetary system. France, which is chairing the meeting, supports inclusion of the renminbi in the IMF-issued virtual currency known as special drawing rights, or SDR.
Last Thursday China’s central bank allowed the renminbi to appreciate to its highest level in the 17 years since China created the current market exchange rate.
Inflation has become a key concern for Chinese policymakers, who have raised interest rates three times in the past five months. January’s consumer price inflation figures will be released on Tuesday.
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