China posts first trade deficit in over 6 years

www.iht.com Chi-Chu Tschang Bloomberg News Monday, February 17, 2003   BEIJING China has posted an unexpected trade deficit for the first time in over six years as it stockpiles crude oil ahead of a possible war on Iraq and consumers take advantage of tariff reductions to buy more imported cars. The deficit in January was $1.25 billion, the first time China has posted a shortfall since December 1996, the Ministry of Foreign Trade and Economic Cooperation said Friday, citing customs statistics. Imports rose 63 percent to $31 billion, driven by a 78 percent increase in the volume of oil imported. Exports rose 37 percent to $29.8 billion. General Motors Corp. and other carmakers are taking advantage of China's entry into the World Trade Organization to import more cars into China and raising production at plants assembling parts shipped from overseas. "It is surprising," said Robert Subbaraman, an economist at Lehman Brothers in Tokyo. "My suspicion is there were temporary factors involved. Oil prices have been going up so China might be trying to front load their imports." As China imported greater quantities of oil, prices rose. The price of crude in New York has risen 73 percent in the past year on concern that an Iraq war may disrupt supplies from the Middle East. A workers' strike in Venezuela also reduced output from the world's fifth largest oil exporter. "Half of the deficit is due to oil," said Gordon Kwan, an industry analyst with HSBC Securities in Hong Kong. Kwan said the import bill might keep rising as war jitters cause crude prices to increase further. China will build a 20-million-ton strategic oil reserve to protect itself from a war in Iraq and other conflicts that may disrupt supply from the Middle East, the government said last month. The country plans to stockpile about 149 million barrels, enough to meet oil demand for one month, said Song Chaoyi, a deputy director at the State Development Planning Commission. There is a growing appetite for raw materials and machinery in China, whose economy is expanding by about 8 percent a year, the fastest pace of any other major nation in Asia. As the economy grows, incomes are rising and foreign cars, wines and other goods becoming more affordable. Car imports rose more than three-quarters to 127,394 units last year after China raised its vehicle quotas as part of its WTO commitments. Car and auto part imports totaled $860 million last month, two and a half times what they were a year earlier, the report said. China will increase its vehicle import quota 15 percent this year to $9.12 billion. General Motors said it imported 789 cars in January, compared with 145 a year earlier. The company's total vehicle sales in China last month topped 30,000, compared with 14,500 a year ago. While China is allowing foreign companies greater access to the growing Chinese market, trading partners such as the United States are pressing for trade barriers to come down faster. The U.S. trade deficit with China widened by a fifth to $93.6 billion in the first 11 months of last year, the U.S. Commerce Department. Chinese negotiators may be tempted to use China's January trade deficit as a reason for easing import restrictions more slowly when they meet next week in Beijing with the U.S. trade representative, Robert Zoellick. Economists said China would need sustained deficits to reasonably argue such a case. Last year, China had a trade surplus of $30.4 billion, up 35 percent from 2001, according the Chinese government.