By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) -- China's trade surplus narrowed further in February to $7.6 billion from $14.2 billion in January because of soaring imports, according to government data released Wednesday.
China's trade surplus during the month came in lower than the $8 billion expected in a Reuters survey of economists, but was higher than the $6.4 billon estimated in a Dow Jones Newswires poll.
When compared with the same month last year, both exports and imports grew at a higher-than-expected rate, with the value of imports climbing 44.7%, reflecting growing domestic consumption in mainland China. The value of outbound goods and services surged 45.7% from February 2009 on a recovery in demand for Chinese goods.
The growth in exports is likely to add to international pressure on China to allow the yuan, also known as the renminbi, to appreciate.
"The latest trade data add to the impression of recent strength, especially for exports. In particular, they strengthen the idea that China's exporters are well-placed to cope with a resumption of gradual renminbi appreciation against the dollar," Mark Williams, senior China economist at Capital Economics, wrote in a note. "Policymakers are clearly cautious though, and with export growth likely to fade around the middle of the year, the pace of renminbi appreciation will be slow."
Since July 2008, China has restricted the local currency's movement to a very tight range around 6.82 yuan to a U.S. dollar.
Despite the lower trade surplus recorded during the month, some economists say the decline may not continue as export growth recovers.
"I would emphasize that the shrinkage in surplus in February was largely because of seasonal factors. I think the surplus is still in the same range as we have seen in the last six to eight months. ... The trade surplus this year is likely to remain somewhere close to the last year's levels," said David Cohen, director for Asian forecasting at Action Economics in Singapore.
China recorded a trade surplus of $196 billion in 2009, 34% lower than in the previous year, as overall trade and exports declined in the wake of the global financial crisis.
Still, some analysts do suspect China could move to a trade deficit this year, if import growth continues to outpace the recovery in exports. See archived story on China's possible swing to a trade deficit.
Exports, imports
February's data compare with a 21% growth in exports in January, when imports surged by as much as 85.5%. But on a seasonally-adjusted basis, February exports dropped 2.2%, although the adjusted figure was still up 59.1% from the year-earlier month, according to Dow Jones Newswires.
Jing Ulrich, managing director and chairman of China equities and commodities at J.P. Morgan, said that just as a slump in exports hurt Chinese economic growth in 2009, the improving trend could add to the gross domestic product growth this year.
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"Signs of the export recovery are broadening and can be found in rising container shipping rates, reported labor shortages in coastal manufacturing hubs and in renewed political pressure for renminbi (yuan) appreciation," she said.
"Improving exports and the seasonal pick up in manufacturing and construction activity will also support the demand outlook for commodities. However, elevated Chinese inventories lead us to expect a return to more normal monthly commodity import levels," Ulrich said.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
