I think things have change, and unlike Germany and japan both countries who economies are still based on exports surpluses, China has a huge domestic consumption potential.
Latest WSJ article shows chinese expecting a trade deficit in March! This might just be a blip but I suspect that future surpluses will now be much smaller as China ramps up imports of hi tech equipment (even if you are running a 25% trade deficit you are importing a heck of a lot of goods). This is the world's largest exporter and they are running a trade deficit? This reflects on the true economic power of the country. By having such a large market it is tough for major powers to take it on.
Germany and Japan with their export surplus economies have to listen to the US since a large % of their exports go there. But not the Chinese since they themselves buy so much. On top of that the Chinese are financing a large portion of US debt.
By ANDREW BATSON And TERENCE POON
BEIJING—The prospect that China may report its first monthly trade deficit in six years could offer an unexpected boost to the nation’s position in the increasingly heated international debate over its currency policy.
Top Chinese officials have in recent days said trade numbers for March could show China imported more than it exported this month—its first monthly deficit since April 2004.
The official numbers for March are scheduled to be reported April 10. But the rush to add supportive data to officials’ talking points highlights how Beijing is stepping up its defense of a currency policy that has drawn fire from trading partners.
Officials from the U.S. and Europe have argued that China’s persistently large trade surpluses show the yuan, which has been held fixed to the U.S. dollar since mid-2008, is undervalued to give Chinese exporters a competitive advantage. Chinese officials counter by pointing out that their nation’s trade surplus has declined sharply in the past year, and argue that China’s large stimulus program helped it keep buying from the rest of the world, thereby supporting global economic growth.
China’s economic growth last year “was achieved mainly by relying on domestic demand,” Premier Wen Jiabao said in a meeting with foreign executives Monday. China’s trade surplus thus has been narrowing, and in the first one-third of March, China ran a trade deficit of about $8 billion, he said.
“To be honest with you, I am pretty happy about this development,” Mr. Wen said.
The premier’s remarks followed comments from Minister of Commerce Chen Deming at a conference Sunday that he expected a trade deficit for the full month of March. Mr. Chen argued that the strong growth in imports helps foreign businesses, and noted that in the first two months of 2010, imports from the U.S. were up 37%, from Europe up 35% and from Japan up 48%. China’s trade surplus for January and February already was down 50% from a year earlier.
An actual trade deficit in March, rather than just a smaller surplus, could give more weight to China’s arguments that the global economy is improving without an appreciation of the yuan. China’s trade surpluses stand out during the current global downturn because they show the country is adding to its growth by selling to other countries. Also, a deficit would be a sign that other countries are expanding by selling to China.
“A trade deficit in March, if realized, would be positive and likely would help reduce international political pressure on China in relation to currency and trade,” Barclays Capital economists said in a note Tuesday. Offshore currency markets were pricing in marginally less future appreciation of the yuan Tuesday after Mr. Wen’s comments were publicized by state media.
Still, many economists don’t expect any trade deficit to last long, and China is still likely to post a large trade surplus this year. The World Bank forecasts that China’s current-account surplus, the broadest measure of its trade position, will rise this year to $304 billion, after dropping to $284.1 billion in 2009 from a record $426.1 billion in 2008.
Many U.S. lawmakers are pressing the Obama administration to take action against China on the currency. The Treasury Department is scheduled to issue its semiannual report on currency policies on April 15, in which it will decide whether to formally label China a currency manipulator. Some senators also have introduced legislation that could lead to tariffs on Chinese goods if Beijing doesn’t change policy.
But domestic politics in China make it hard for Mr. Wen’s administration to change positions. Export manufacturers are big employers and have a strong voice in China’s commerce ministry. They argue a strengthening of the currency would derail their nascent recovery.
“We hope our government can bear the pressure and stabilize the exchange rate,” said Bai Ming, a deputy general manager of Zhejiang Mingfeng Car Accessories Co., which makes car cushions and covers.
