Thursday, March 13, 2008

China not immune to West's economic turmoil

China's trade surplus fell by more than half last month in a dramatic indication that the world's fastest growing economy is not immune to economic turmoil in the west.



The surplus for February was $8.56bn (£4.24bn), down from $19.5bn in January and a drop of 63pc from $23.8bn in February last year.

January and February often see wild swings in Chinese economic data, because of changes in the date of the lunar new year holiday, when factories close for at least two weeks.

This year Chinese manufacturing heartlands were also badly affected by a prolonged freeze, with snowfalls bringing down electricity lines and preventing coal getting to power stations.

Nevertheless, analysts suggested that the big rises in the surplus seen in the last three years, which sent GDP growth to 11.4pc in 2007 and caused friction with China's major trading partners, America and the European Union, may now be peaking.
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This was confirmed if the January and February figures were taken together, said Paul Cavey, an economist at Macquarie Securities in Hong Kong.

"Export growth has slowed a little bit and import growth has picked up a little bit, which is the trend we expect for the year as a whole," he said.

In fact, imports rose 35.1pc by value year-on-year, as China paid more for oil and other commodities.

China's economic planners are nervously hoping that the figures are a sign the country is heading for a soft landing after a period of explosive growth dominated by exports and investment.

The figures should reduce the need to target policy at appeasing America at a time when presidential candidates are increasingly indulging in protectionist rhetoric.

Exports to the United States actually fell 5pc, to $16.4bn.

Nevertheless, the planners still have to balance the need to create new jobs and maintain growth and the need to curb prices.



Arthur Kroeber, managing director of Dragonomics, an economics consultancy, said it was possible that while the trade surplus had peaked the domestic economy could still be expanding too fast.

"We could still be in an overheating situation even with a lower headline figure for GDP growth," he said.

"I have a feeling that (the government) thinks that if exports slow down that will be enough to curb domestic overheating, but if they think that I fear they are wrong."

China's prime minister, Wen Jiabao, has warned that fighting inflation is now his first priority, a commitment that will be thrown into sharp relief when February's consumer prices figures are released later this week.

Analysts are predicting the index will jump to at least 8pc, up from an already worrying 7.1pc in January.

The producer prices index, also released yesterday, showed a rise to 6.6pc, up from 6.1pc in January.

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