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China Trade Data Show Economy Tolerating Higher Rates

Sunday, 10 Apr 2011 05:07 PM

China’s faster-than-expected growth in exports and imports last month may allow Premier Wen Jiabao to strengthen his fight against inflation, which probably exceeded his target for the ninth straight month in March.

Overseas shipments jumped 35.8 percent last month while imports climbed 27.3 percent to a record, pulling the trade balance unexpectedly into surplus after a $7.3 billion shortfall in February, the customs bureau said yesterday.

The gains add to evidence that the world’s second-biggest economy isn’t being hobbled by higher borrowing costs and curbs on lending. China’s benchmark stock index has climbed 9 percent since the first of two interest-rate increases this year, beating the 0.6 percent gain in the S&P 500 Index and a 1.4 percent drop in the MSCI Asia Pacific Index.

“March export figures came in stronger than expected, shrugging off the impact of Japan’s disaster and the surge in oil prices,” said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. “This reconfirms that inflation rather than growth remains as the key risk for China. Get ready for more reserve ratio and rate hikes in the coming months.”

Wen last week reiterated that controlling price gains is his top economic priority after food and housing costs surged, threatening social stability. The government will use reserve requirement ratios, interest rates and foreign-exchange rates to “eliminate the monetary basis for inflation,” the Xinhua news agency quoted Wen as saying on a trip to Zhejiang province.

Inflation Accelerates

Inflation accelerated to 5.2 percent in March, exceeding the government’s 2011 target of 4 percent for the third month, according to the median estimate in a Bloomberg News survey.

The People’s Bank of China raised interest rates four times and boosted banks’ reserve requirement ratios six times since the third quarter. HSBC said last week the possibility of another rate increase is growing. Credit Suisse forecasts the benchmark one-year deposit rate, which has risen 1 percentage point to 3.25 percent, will climb another 1.5 percentage points by the end of the year.

A report on April 15 may show China’s gross domestic product expanded 9.4 percent in the first quarter from a year earlier, according to the median estimate in a Bloomberg News survey. The economy grew 9.8 percent in the fourth quarter.

There’s “little risk of a hard landing,” Paul J. Heytens, China country director of the Asian Development Bank said last week, citing “robust” growth in industrial production, retail sales and real-estate investment.

Slowing Growth

Expansion will ease to 9.6 percent this year from 10.3 percent in 2010 as the government’s fiscal stimulus winds down and monetary policy is tightened, the Manila-based lender forecast.

The growth in March exports beat the forecasts of 24 out of 25 economists in a Bloomberg News survey and was 53 percent higher than the median estimate and the gain in imports topped the 20.6 percent forecast. The $140 million trade surplus compared with the median forecast for a deficit of $3.35 billion.

“The better-than-expected exports and imports should remove concerns there will be a rapid economic downturn,” Dong Xian’an, former chief economist at Industrial Securities and now at Beijing-based Peking First Advisory, said in a note yesterday.

Export growth to China’s biggest trading partners - the European Union and the U.S. - accelerated last month as their economies recovered from the global financial crisis, customs bureau data showed. Shipments to Japan surged 37.4 percent from a year earlier to a record $13.1 billion.

Economic Recovery

The Organization for Economic Cooperation and Development said last week an economic recovery among the world’s most advanced economies is gathering strength. The Paris-based body forecast the Group of Seven economies excluding Japan probably expanded an annualized 3.2 percent in the first quarter and 2.9 percent in the second.

A surge in commodity prices contributed to China’s trade deficit of $1.02 billion in the Jan.-March period, the first quarterly shortfall in seven years. The higher costs may prompt the government to allow faster yuan appreciation.

Inbound crude oil shipments in the first quarter rose 12 percent by volume and 39 percent by value to $43.7 billion, according to yesterday’s customs data. The cost of iron ore imports jumped 82.5 percent to $27.7 billion while the amount of metal climbed 14.4 percent.

“China is still facing strong pressure from imported inflation,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group in Hong Kong who formerly worked for the World Bank. “While the authorities can use fiscal subsidies to offset this, the exchange rate tool is more effective to contain imported inflation.”

The PBOC set the yuan’s daily reference rate against the dollar at the strongest level since July 2005 each trading day last week and the currency touched a 17-year high on April 8.

The yuan has gained more than 4 percent over the past 12 months. That hasn’t been enough to satisfy the U.S., with Treasury Secretary Timothy F. Geithner continuing to describe the currency as “substantially undervalued.

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China s faster-than-expected growth in exports and imports last month may allow Premier Wen Jiabao to strengthen his fight against inflation, which probably exceeded his target for the ninth straight month in March.Overseas shipments jumped 35.8 percent last month while...
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2011-07-10
Sunday, 10 Apr 2011 05:07 PM
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