China surprises with export-led March trade surplus

BEIJING (Reuters) - China returned to an export-led trade surplus in March, heralding the prospect that the global economy may be passing its low point in the current cycle and lifting overseas orders just in time to compensate for a slowdown in domestic demand.

The trade surplus of $5.35 billion last month confounded expectations of a $1.3 billion deficit as exports grew faster than expected and import growth eased from a 13-month peak, customs data showed on Tuesday.

The data reinforced the view of most analysts that China's trade-sensitive economy is set for a soft landing, with GDP growth likely to have eased for a fifth successive quarter to 8.3 percent in the first three months of 2012 and remaining on course for its slowest year of expansion in a decade.

"The trade data looks okay... it shows the global economy is recovering, albeit slowly," said Zhou Hao, an economist with ANZ Bank in shanghai.

"Given that China had a trade surplus in the first quarter versus a deficit in the Q1 last year, it indicates a positive contribution to GDP growth. We reckon Q1 GDP growth should be 8.6 percent. I think the market is a bit too pessimistic about China's economy."

Exports to the United States - the single country with the biggest trading relationship with China - were a particular high point, up 10.4 percent from a year ago.

Those to the 27 members of the European Union - the biggest overall market for Chinese goods - were down 3.1 percent from March last year.

Import and export growth were both down sharply from February's Lunar New Year distorted surge, though within sight of the government's target of 10 percent expansion for 2012.

SMALLER SURPLUS

Import growth of 5.3 percent in March compared with economists' expectations of 9.0 percent and February's 39.6 percent growth, while export growth of 8.9 percent compared with a consensus call for 7.2 percent, still a marked easing from February's 18.4 percent rate.

The two numbers left the overall trade balance in surplus, reversing February's $31.5 billion run of red ink on the balance of payments and confounding market expectations of a $1.3 billion deficit.

Zheng Yuesheng, statistics chief with the Customs Administration, told state television that China was expected to post a trade surplus for the full year, but that the overall size of its surplus was expected to be smaller than 2011.

China's trade surplus narrowed for a third straight year to $155 billion in 2011, from $183 billion in 2010, $196 billion in 2009 and $296 billion in 2008. The trade surplus as a share of gross domestic product (GDP) dropped to about 2 percent in 2011 from 3.1 percent in 2010.

But despite the unexpected return to surplus, the relatively slack pace of export growth may still concern investors who believe the risks of recession in the debt-ridden EU could be a dangerous drag on growth in the world's number 2 economy.

REAL ECONOMY RISKS

It will remain a concern for China's export-oriented manufacturing sector, which has seen new orders and profit margins slump through 2011 as the euro zone's debt crisis has dampened global economic activity.

"Our new orders have fallen 30-40 percent this year. We are doing our best, but frankly I don't know how long we can maintain our business," Chen Lifeng, manager of Ningbo Tengsheng Garments Co., told Reuters on a recent visit to his factory in China's east coast Zhejiang province.

Rows of empty sewing machines on the factory floor - about a third of the capacity - were testament to the tough times faced by China's manufacturers, not only from sluggish demand, but from rising domestic wage costs and energetic foreign competition from the likes of Vietnam, India and Bangladesh.

March data provided the first hard economic numbers of the year not distorted by the impact of the Lunar New Year holiday that fell in January this year, causing considerable skew in comparisons with 2011 when the holiday was in February.

China's data releases build to a crescendo through the week, with first quarter GDP numbers expected to be published on Friday and forecast to show the slowest quarter of growth in nearly three years.

Inflation data published on Monday kept the government on stand-by to deliver more growth-oriented policies, with a trend of easing consumer costs in the first quarter confirmed while producer prices revealed risks to the industrial sector recovery.

The People's Bank of China has cut the proportion of deposits banks must keep as reserves by 100 basis points in two moves since autumn 2011 in a bid to keep credit growing in the face of a recent slowdown of foreign capital inflows, which had underpinned money supply growth for much of the last decade.

(Additional reporting by Kevin Yao; Editing by Alex Richardson)

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