China's Trade Deficit is a Sign of Things to Come
By Wei Gu and Edward Hadas | Posted Monday, March 12, 2012, at 11:13 AM ET
China will have to get used to monthly trade deficits. Special factors contributed to the $4.2 billion negative number for the first two months of 2012, but something fundamental is changing. A smaller portion of China’s imports are of goods which will be processed for export, and a higher portion is going straight into domestic consumption.
A 13 percent volume increase in soybean imports may be partly due to precautionary purchase after drought losses in South America. And the 50 percent year-on-year increase in copper imports is suspicious. Copper can be used a wheeze to circumvent tight monetary policy. Importers get a letter of credit for commodity imports, sell the commodity quickly and keep the credit until maturity.
But some of the shift is durable. The increased wealth of Chinese households leads to more imports for consumption. Agricultural imports by value quintupled between 2000 and 2010. Automobile imports jumped 33 percent to 184,000 vehicles during the first months of 2012, year on year.
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It’s fairly easy to keep trade in surplus when almost all exports are basically imports-plus-labour. But as the import economy takes on its own momentum and becomes more separated from the export trade, occasional monthly deficit will be harder to avoid. The trade deficit is sign of things to come.
