China reports $7.3 bln trade deficit in February

China recorded a trade deficit of 7.3 billion U.S. dollars in February as the Lunar New Year holiday season dented exports, the General Administration of Customs (GAC) said Thursday.

This is China's second monthly trade deficit in a year, after the country announced a deficit of 7.24 billion U.S. dollars in March 2010, which was, at that time, the first time in six years.

In the first two months this year, China posted a trade deficit of 890 million U.S. dollars, as January's trade surplus shrank year on year by more than half to 6.45 billion U.S. dollars, said the GAC.

The GAC attributed the deficit to the week-long Spring Festival break in early February, saying the holiday had hindered export growth.

China's foreign trade rose by 10.6 percent year on year to 200.78 billion U.S. dollars last month, said the customs.

Exports grew by 2.4 percent year on year to 96.74 billion U.S. dollars in February while imports increased by 19.4 percent to 104.04 billion U.S. dollars.

For the first two months of the year, China's foreign trade totaled 495.83 billion U.S. dollars, representing a 28.3 percent growth from the same period last year.

The European Union remained China's largest trade partner in the period, with EU-China trade up 16.3 percent year on year to 76.2 billion U.S. dollars.

Meanwhile, trade with the United States rose 22.6 percent year on year to 60.5 billion U.S. dollars while China-Japan trade jumped 28.8 percent year on year to 48.85 billion U.S. dollars.

Chinese Commerce Minister Chen Deming said earlier this week during the ongoing annual parliamentary session, that it was possible that China would register trade deficits in some months, as the growth of imports would likely soon outpace that of exports.

There are still "uncertainties" in the global market that could hinder export recovery, together with increasing domestic factors that had driven up production costs, he said.

But economists said the seasonal factor had largely affected the February trade figure, as Chinese exporters rushed to finish all the orders before the Chinese Lunar New Year holiday.

The slump in February exports is merely "temporary and seasonal," said Liu Ligang, Head of Greater China Economics with the ANZ Bank, and he expected a strong rebound in exports in March.

Liu compared February's deficit with the previous one, when China witnessed the first monthly trade deficit in six years in March last year. But the trade deficit was short lived as exports rebounded in April.

Wang Qing, chief economist for Greater China with Morgan Stanley, said the February trade conditions shoud be reviewed together with the January figure.

The GAC figures had shown that exports grew 21.3 percent in the two-month period, reflecting "stable growth" in foreign trade, he said.

Rising imports partly due to higher international commodity prices, including crude oil and iron ore, had also attributed to the deficit said Li Jian, a researcher with the Chinese Academy of International Trade and Economic Cooperation, an affiliate of the Ministry of Commerce.

But more importantly, Li said, the deficit reflected a trend of declining trade surpluses, which was a result of China's foreign trade policy of "stabilizing exports, boosting imports while having a lower trade surplus."

"Overall, the country's imports growth is picking up while exports growth is slowing," he said.

China's trade surplus fell 6.4 percent year on year to 183.1 billion U.S. dollars in 2010, according to GAC figures.

Market observers said the sudden deficit was linked to a rising yuan, instabilities in external markets, and rising labor costs.

Tan Yalin, an expert at the China Institute for Financial Derivatives at Peking University, said the deficit could help reduce pressure for the yuan to appreciate, but it was not a positive sign for Chinese exporters.

The foreign markets are turning to other countries for manufacturing with the strengthening of the yuan, and China's exporters need to figure out how to maintain the competitive edge in future, she told Xinhua.

The Chinese currency renminbi (RMB), or the yuan, on Monday strengthened to an all-time high of 6.5651 per U.S. dollar. On Thursday, the central parity rate of yuan was set at 6.5713 per U.S. dollar.

The yuan has appreciated nearly 4 percent since June 19 last year when the People's Bank of China, the central bank, announced it would further reform the exchange rate formation mechanism to improve the yuan's flexibility.