Reuters/Beijing

 

 

A China Shipping Container Lines Co ship travels down a sea lane near a port in Hong Kong. China’s exports grew 2.4% in February from a year earlier, the customs agency said yesterday, well short of forecasts for a rise of 26.2%

China swung to a surprise trade deficit in February of $7.3bn, its largest in seven years, as the Lunar New Year holiday dealt an unexpectedly sharp blow to exports.

It was China’s first trade deficit since March last year and its biggest since February 2004. Economists, who had forecast a small surplus of $4.95bn, said the sudden drop was likely to prove temporary.

“We did expect exports to slow last month, but I think nobody had expected such a weak outcome,” said Nie Wen, an analyst at Hwabao Trust in Shanghai.

“There is little chance that China will have a trade deficit again, and the monthly trade surplus may pick up in the second half of this year,” he added.

Still, the extent of the slowdown in both exports and imports caught markets by surprise. Asian stocks tumbled on worries that monetary tightening in China and other emerging markets was taking a real chunk out of economic growth.

The deficit will at least be welcome news on two fronts for the Chinese government, helping it dampen inflationary pressure and deflect calls for faster yuan appreciation.

Cash inflows from the country’s vast trade surplus over the past few years have been a root cause of China’s recent run-up in prices.

Inflation reached a 28-month high of 5.1% in the year to November. Data due today is expected to show it pulled back to 4.7% in February.

With tightening policies beginning to have an impact, China is confident that it can achieve its 2011 goal of holding inflation to an average of 4% this year, Ma Jiantang, the government’s statistics chief, said yesterday.

His comments followed a report in an official newspaper that bank lending in February was much less than expected, indicating that Beijing has scored some success in reining in credit issuance, a crucial part of its campaign to control inflation.

Until that number is confirmed, though, attention will be squarely on China’s precipitous drop in exports.

China exports grew 2.4% in February from a year earlier, the customs agency said yesterday, well short of forecasts for a rise of 26.2%.

Imports increased 19.4%, missing market expectations of a 32.3% increase.

The data hit markets when investors are already worried that high oil prices will undermine global growth. Japan’s Nikkei stock average fell 1.5% and stocks elsewhere in Asia slid 1.4%.

“It’s come on a day when commodity prices are off, and investors are worried about global growth and it’s just accentuated the market pullback,” said Shane Oliver, head of investment strategy at AMP Capital Investors.

“The Lunar New Year does heavily distort Chinese trade data and I’ll be inclined not to read too much into it. But the market is obviously feeling nervous and has probably read a bit more into it.”

The government has in the past pointed to a narrower trade surplus as evidence that it is making headway in tilting China away from excessive reliance on exports, a shift that is seen as a crucial part of putting the global economy on firmer footing. But many economists cautioned against reading too much into one month’s trade data, especially in the first quarter.