China posts first quarterly trade deficit in seven years

Despite a small trade surplus in March, China's 2011 first quarterly deficit stands at $1.02bn.

For the first time since 2004, China has seen a first quarterly trade deficit of $1.02bn, despite a small trade surplus of $140m for the month of March.

The figure reflects soaring commodity prices over the last year, and suggests evidence of the country rebalancing its economic agenda.

China has faced criticism over its export-led growth policy and supporting the sector with its very low currency pricing. Whilst a weaker yuan in recent decades has kept down the cost of Chinese goods, the currency has slightly appreciated in the last year to an all-time high of 6.5401 against the US dollar.

China's trade growth is expected to "remain robust due both to the robust real economy and to rising prices", said Lu Ting of Bank of America. China says it is working towards increasing domestic demands.

IHS Global Insight still expect the country to see a surplus of $250bn in 2011, though warn it could be smaller than expected.

Isaac Meng of BNP Paribas said: "Even though the exchange rate is only slowly appreciating, strong inflation, especially labour costs, is making the rebalancing happen."

Growth of exports to Japan following February's earthquake held firm and have since more than recovered. While it is still unclear what damage has been caused to the Japanese economy, the country's reconstruction in the longer-term "will mean huge demand for Chinese products", said Mr. Meng.