China surprises with export-led March trade surplus

China returned to an export-led trade surplus of $5.35 billion in March, heralding the prospect that a rebound in the global economy is lifting overseas orders just in time to compensate for a slowdown in domestic demand

The surprise return to surplus from February's $31.5 billion deficit confounded expectations that trade would remain $1.3 billion in the red, with a solid 10.4 percent year-on-year bounce in sales to the United States helping exports grow faster than expected, customs data showed on Tuesday.

Imports undershot expectations, growing 5.3 percent on the year in March - consistent with other data suggesting soggy domestic demand in the first quarter of the year - but the trade numbers overall reinforced the view of analysts that China's trade-sensitive economy is set for a soft landing in 2012.

"The key point is that the export growth was up from 6.8 percent year-on-year in the January-February period," Dariusz Kowalczyk, an economist with Credit Agricole CIB in Hong Kong, told Reuters.

"Acceleration in exports may well be slower in volume terms, but the data still highlights the fact that China can continue to count on foreign demand to partly mitigate for weakening domestic demand," he said, adding that the data implied trade would be a net addition to economic growth in the first quarter.

Trade was a net drag on growth last year as the world's second biggest economy turned in its slowest rate of expansion since 2009, at 9.2 percent, with each quarter's growth in 2011 successively weaker than the previous three months.

That trend is likely to have extended to a fifth consecutive quarter in the first three months of 2012, with analysts polled by Reuters forecasting an 8.3 percent growth rate that sets the economy on course for its slowest year in a decade.

"The trade data looks okay... it shows the global economy is recovering, albeit slowly," said Zhou Hao, an economist with ANZ Bank in shanghai.

"Given that China had a trade surplus in the first quarter versus a deficit in the Q1 last year, it indicates a positive contribution to GDP growth. We reckon Q1 GDP growth should be 8.6 percent. I think the market is a bit too pessimistic about China's economy."

Exports to the United States - the single country with the biggest trading relationship with China - were a particular high point. But shipments the 27 members of the European Union - the biggest overall market for Chinese goods - were down 3.1 percent from March last year.

Data Skew

Overall, import and export growth were both down sharply from February's Lunar New Year-distorted surge, though within sight of the government's target of 10 percent expansion for 2012.

Import growth of 5.3 percent in March compared with economists' expectations of 9.0 percent and February's 39.6 percent growth, while export growth of 8.9 percent compared with a consensus call for 7.2 percent, still a marked easing from February's 18.4 percent rate.

March data provides the first hard economic numbers of the year not distorted by the impact of the Lunar New Year holiday that fell in January this year, causing considerable skew in comparisons with the February 2011 holiday.

For the first quarter as a whole, the Customs Administration said the value of total exports was $430.02 billion, while imports were $429.35 billion - bringing the trade account roughly into the balance targeted by the government as it re-orients the economy away from a focus on foreign demand.

Zheng Yuesheng, statistics chief with the Customs Administration, told state television that China was expected to record a trade surplus for the full year, but that the overall size of its surplus was expected to be smaller than 2011.

China's trade surplus narrowed for a third straight year to $155 billion in 2011, from $183 billion in 2010, $196 billion in 2009 and $296 billion in 2008. The trade surplus as a share of gross domestic product (GDP) dropped to about 2 percent in 2011 from 3.1 percent in 2010.

But despite the unexpected return to surplus, the relatively slack pace of export growth may still concern investors who believe the risks of recession in the debt-ridden European Union - China's top export market - could prove painful.

Real Economy Risks

It will remain a concern for China's export-oriented manufacturing sector, which has seen new orders and profit margins slump through 2011 as the euro zone's debt crisis has dampened global economic activity.

"Our new orders have fallen 30-40 percent this year. We are doing our best, but frankly I don't know how long we can maintain our business," Chen Lifeng, manager of Ningbo Tengsheng Garments Co., told Reuters on a recent visit to his factory in China's east coast Zhejiang province.

Rows of empty sewing machines on the factory floor - about a third of the capacity - were testament to the tough times faced by China's manufacturers not only from sluggish demand, but from rising domestic wage costs and energetic foreign competition from the likes of Vietnam, India and Bangladesh.

Exporters have been key to China's three decades of rapid economic development, with economists calculating that 10,500 jobs are created for every $100 million of goods exported.

China's data releases build to a crescendo through the week with first quarter GDP numbers expected to be published on Friday and forecast to show the slowest quarter of growth in nearly three years.

Inflation data published on Monday kept the government on stand-by to deliver more growth-oriented policies, with a trend of easing consumer costs in the first quarter confirmed while producer prices revealed risks to the industrial sector recovery.

The People's Bank of China has cut the proportion of deposits banks must keep as reserves by 100 basis points in two moves since autumn 2011 in a bid to keep credit growing in the face of a recent slowdown of foreign capital inflows, which had underpinned money supply growth for much of the last decade.

[Source: By Nick Edwards, Reuters, Beinjing, 10Apr12]

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