After exports to its main markets slowed down, China reported a surprise trade deficit since February last year.
Latest data released by the Chinese government shows that shipments from the country grew at a slower-than-expected rate of 2.4% in February over last year. However, imports during February grew at a whopping 19.4% over last February, resulting in a trade deficit of $7.3 billion (£4.5 billion).
The latest trade deficit data may blunt some of the criticism China has been facing because of its economic policies.
The US has long been a vocal critic of China, blaming it of manipulating its domestic currency. It blames Beijing of artificially undervaluing the Yuan, thus making exports cheaper.
Washington has been relentlessly pressurizing Beijing to let its currency appreciate against the US dollar.
Latest data may ease some of that pressure. “A trade deficit offers relief to the international trade imbalance, and it may help to reduce pressure on the Yuan to appreciate”, said analyst Wang Jianhui of Southwest Securities.
The deficit may continue for some time in future as the Chinese government tries to boost domestic consumption, said Wang.
“The Chinese government will be happy to see a modest trade deficit for a while”, he added.
The China growth story has mostly been fuelled by exports to the US and the European region. However, as the key markets slowed down, China announced that it will increase domestic consumption to maintain the momentum.
However, some analysts are skeptical about the growth in domestic demand. Growth in imports – a key indicator of domestic consumption was expected to grow by 30% in February, but clocked 19.4% instead.
“Imports have dropped significantly, and it points to a serious weakening in domestic economic activity”, said Xu Biao of China Merchants Bank.
“It is definitely not a good sign”, he said on a cautious note.