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China exported nearly $2 trillion worth of stuff in 2011, more thanany other country in the world. Which is why the recent dip in itstrade balance is so surprising not so much because it happened,but because of how big it was. Over the weekend, China reported a $31.5 billion trade deficit for February. While it was the third time China s trade balancehad gone negative in the last two years, this deficit dwarfs thecountry s previous ventures into the red. China posted a $7.3billion trade deficit in February 2011 and a $7.2 billion deficitin March 2010. The first two months of China s balance-of-trade data tend to becloudy because the period includes Chinese New Year, the country sbiggest holiday, when people take a week off work and exports tendto fall. That said, February s deficit was China s biggest sinceDecember 1989, when it soared0 2to $66 billion. Still, most Chinaanalysts hesitate to read too much into the February number. I mnot so sure that this reveals a new reality of any kind, saysSteven Dunaway, an adjunct senior fellow for internationaleconomics at the Council on Foreign Relations. What is clear isthat their export growth is slowing down. The recession that s spreading across much of Europe has a lot todo with that, since the continent is the biggest market for Chinesegoods. China s export slowdown also reflects an erosion ofhistoric cost advantages, as Chinese wages have continued to riseover the last few years. It might also be early evidence of aneconomy that s starting to cool after a decade ofnear-double-digit gross domestic product growth. If that s the case, one of the biggest casualties could0 2beChina s begrudged effort to raise the value of its currency.0 2AsBloomberg News0 2 reported Monday morning, after the trade deficit report was announced,China s central bank lowered its daily fixing of the yuan by themost since August 2010. While it remains perfectly feasible thatlater this year we will see substantial trade surpluses again, theshort term effect [of the deficit] is that it will likelystrengthen the voices within China who do not want to see furtherappreciation of the yuan, says Kenneth G. Lieberthal,0 2directorof the China Center at the Brookings Institution. After rising 4.7 percent in 2011, the value of China s yuan hasfallen 0.50 2percent so far this year, according to Bloomberg News.Given the lower economic growth target Chinese Premier Wen Jiabaoannounced earlier this month, CFR s Dunaway believes China willprobably continue to slow, if not stop, the appreciation of itscurrency. That, in turn, would likely renew tension with the U.S.over trade issues. The Treasury Department0 2may tolerate somemoderate slowing, but if China reverts back to fixing its exchangerate, that could spark major tensions, says Dunaway. Depending on what happens with China s foreign currency reservesthis year, the guessing game over whether or not the yuan continuesto appreciate could become moot. For the last decade, China hassteadily increased its stockpile of foreign currency, from lessthan $500 billion in 2001 to its current mother lode of $3.2trillion. Over the first six months of 2011, China added $350 billion to its foreign currency reserves. Since then, the growth hasstopped. That is the big mystery we re facing on China rightnow, says Derek Scissors, a China analyst at the HeritageFoundation. To go from adding $350 billion in six months tostopping cold we do not understand that change. If their balance of payments surplus is gone, then there is noreason for them to keep adjusting their currency to kill off theimbalances, says Scissors. U.S. lawmakers have been relatively quiet on the issue of Chinacurrency manipulation over the last several months. Last fall, a bill that aimed to crack down on China s history of manipulating its currency was movingthrough the U.S. Senate. The issue has since died out. That couldchange quickly over the next few months. Spring is typically whenpeople complain about China, says Scissors. Lawmakers come backfrom recess after going back to their districts, where people tendto tell them they can t compete with Chinese goods. Given that it s a U.S. election year, the silence on China scurrency issues certainly won t last. The e-commerce company in China offers quality products such as Heavy Duty Racking System , China Cantilever Racking, and more. For more , please visit Double Deep Racking today!
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