Beijing has reported a US$ 7.3 billion trade deficit as exports slow down and imports grow substantially. This will have an impact on the dispute over the yuan. However, domestic demand is not growing fast enough to sustain China’s present rate of economic growth.

Beijing (AsiaNews/Agencies) – China posted a trade deficit of US$ 7.3 billion in February, the largest in seven years. Shipments grew at a weaker-than-expected 2.4 per cent last month compared to a year ago, whilst imports rose by 19.4 per cent.

As a matter of policy, Beijing has kept the yuan undervalued in order to make its exports competitive on foreign markets. The flip side of that is that Chinese consumers are penalised because of higher domestic prices and limited access to imports.

February’s deficit will nevertheless give Chinese authorities ammunitions to put off letting the yuan appreciate, as Western powers have asked, this according to economist Wang Janhui. Usually, Chinese leaders have feared that if Chinese goods were priced higher, exports would decline, negatively impacting output and employment.

As China tries to rebalance its trade and increase domestic demand, the slowdown in exports could continue in coming months.

Now all eyes are turned to the G20 summit in Nanjing, set for 31 March, where finance ministers will discuss ways to overhaul the global monetary system and focus on the yuan’s value and its expanding international role.

For decades, China’s economic miracle has been export-driven. With a the economies of the United States and the European Union slowing down, Beijing has had to boost domestic demand to keep the same rate of growth. However, this has been undermined by high inflation and loss of purchasing power by the middle class.

Imports are considered a good measure of domestic demand. They were expected to grow by more than 30 per cent last month, but rose instead by only 19.4 per cent, evidence that Chinese consumers are bit jittery.

A trade deficit does have one good thing going for it—it soaks up cash from the financial system, reducing inflation, something especially important at a time of rising oil prices due to the Jasmine Revolution.

Nevertheless, the stranglehold the Chinese Communist Party has on the country tends to distort the economy, economist Andy Xie said. Communist leaders often hold positions in both public and private companies, playing a monopolistic role to enrich themselves. Given China’s very limited social safety net and their inflation-sensitive fixed incomes, the middle classes are the first to bear the burden of such distortions.

As part of the nation’s five-year plan running through 2015, Chinese officials this week announced plans to boost domestic consumption, including a raise in the minimum wage by an average of 13 percent a year.

In the meantime, China’s trade surplus could slide to US$ 150 billion this year, down from US$ 183 billion in 2010 and the record US$ 295 billion in 2008, central bank adviser Li Daokui said.

• china
• trade
• deficit
• yuan
• appreciation
• imports
• exports
• domestic
• consumption
• demand