By Marcus Leach
China’s economy has come under the spotlight after it was announced they suffered a trade deficit for the first time in a year.
A vast gap between exports, which grew by only 2.4% from the same time last year, and imports, which have increased by almost 20%, has resulted in a trade deficit of £4.5 billion.
The deficit is the largest China’s trade has seen in seven years, and comes at a time of growing criticism for the countries export-led growth policy.
Most of the criticism has come from the US, who claim China keep the value of their currency, the Yuan, purposely low in order to boost foreign sales. The weaker currency serves to make their goods more affordable, thus giving them an advantage over many of their close competitors.
China has ignored repeated calls to let their currency appreciate against the US dollar, although analysts believe the current trade deficit may ease that pressure.
“A trade deficit offers relief to the international trade imbalance, and it may help to reduce pressure on the Yuan to appreciate,” Wang Jianhui of Southwest Securities said.
“The Chinese government will be happy to see a modest trade deficit for a while.”
The boom in China’s economic growth during recent times has been largely due to its surge in exports, but with demand in key markets slowing China has said it will focus on increasing domestic consumption in order to maintain economic growth.
However, with domestic demand not increasing as expected the problems with China’s economy may be more serious than first thought. Imports were expected to grow by more than 30% in February, but ended rising only by 19.4%.
“It is definitely not a good sign,” said Xu Biao of China Merchant Bank.
“Imports have dropped significantly, and it points to a serious weakening in domestic activity.”