Paul Lachine

The Making of China’s Trade Deficit

The US Congress recently issued its loudest call ever to classify China as an exchange-rate manipulator, accusing Chinese leaders of maintaining the renminbi’s peg to the dollar in order to guarantee a permanent bilateral trade surplus. And yet, at around the same time, in March, China recorded its first monthly trade deficit in six years.

BEIJING – China registered a monthly trade deficit of $7.2 billion in March 2010, its first since April 2004. And yet, at around the same time, the United States Congress issued its loudest call ever to classify China as an exchange-rate manipulator, accusing Chinese leaders of maintaining the renminbi’s peg to the dollar in order to guarantee a permanent bilateral trade surplus.

China’s March trade deficit indicates, first of all, that it is incorrect to claim that Chinese economic growth depends mainly on exports. Exports are an important part of the Chinese economy, and any global market fluctuation or external shock will certainly have an impact on overall growth. But, like any other large economy, China’s economy is driven by domestic consumption and investment.

Indeed, China’s exports fell by 16% year on year in 2009, owing to the global financial crisis and recession. Nevertheless, annual GDP grew by 8.7%, thanks to 16.9% growth in consumption (measured by gross sale of consumer goods) and a 33.3% surge in fixed-investment demand.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/R0IxfcQ;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.