The incredibly short life of China's trade drop

NEW YORK (CNNMoney.com) -- China's global trade surplus fell sharply in March to its lowest level in more than a year, the government there reported Tuesday just as the United States filed a case against it before the World Trade Organization.

But experts in the field attribute the drop to the timing of the Chinese New Year, rather than any change in Chinese trade policy or effort to appease critics in the United States, its most significant trading partner.

"You can't make anything out of one month's decline," said University of Maryland professor Peter Morici, a strong critic of Chinese trade and currency policy. "We've seen nothing to indicate a profound change there."

In fact global exports from China rose slightly in March to $83.4 billion, up 1.6 percent compared to February, the month with the New Year holiday this year. The gain followed a 5 percent drop in exports in February.

Meanwhile Chinese imports spiked up 31.2 percent to $76.6 billion, after falling 17.6 percent to $58.3 billion in the holiday-affected February period. Unlike most common U.S. economic statistics, Chinese readings are not seasonally adjusted.

The resulting $6.9 billion trade surplus represents a 71 percent decline. But it was only the the lowest surplus since $2.5 billion in February 2006, when the New Year holiday fell in late January that year.

The first quarter trade surplus now stands at $46.5 billion, about the same level seen in of 2006, when the surplus for the full-year was reported at $177.5 billion.

Jay Bryson, an international economist with Wachovia, agreed that the Chinese trade numbers are very volatile and affected by the holiday. But he said he is seeing signs that the Chinese are starting to direct more of their product to the domestic market, rather than export.

"If you step back and take a long run view, there was a lot of capacity built up in China in the last year or two, a lot of pressure to export," said Bryson. "It's not getting built up as fast any more. And more of the stuff being produced there is now being bought domestically."

Vice-Minister of Commerce Wei Jianguo said yesterday that China would introduce more policies to boost hi-tech and machinery imports, especially from countries that have a large deficit with China, according to a report on a government Web site.

"One of the main ways to trim the trade surplus is by increasing imports of advanced technology and key equipment," Wei said.

Reuters reported that China also introduced a raft of cuts in export tax rebates for products it is trying to discourage firms from selling overseas, including basic metals and textiles.

Qing Wang, an economist with the Bank of America in Hong Kong, told Reuters that the trend was still for rising surpluses.

"If you look at the first quarter data as a whole, it is still a very large trade surplus," Wang said. "For the entire year, the trade surplus could be huge."

John Frisbie, president of the US-China Business Council, a group representing major U.S. companies doing business there, said that it's too soon to say if China will be able to trim its trade surplus with the United States.

"They have a very clear policy that they intend to do that. The jury is still out." he said. "We have to wait and see some concrete measures that might turn that around."

Morici and other critics of China's trade surplus with the United States said the country is still not doing enough to level the playing field to allow for free trade. They say China's actions to keep the value of its currency, the yuan, closely pegged to the dollar, provides an unfair subsidy for Chinese exports here and makes U.S. goods too expensive to compete there.

"I have no doubt there are various shifts in export tax credits going on. But I also have no doubt that the net effect will be to boost exports in the long-term," said Alan Tonelson, a research fellow at the U.S. Business & Industry Council, which represents small and mid-size U.S. manufacturers.

The trade figures come on the same day that the U.S. government filed two complaints with the World Trade Organization, charging the Chinese government is not doing enough to combat piracy of American books, music, video and movies or opening access for American products.

"Piracy and counterfeiting levels in China remain unacceptably high," U.S. Trade Representative Susan Schwab said in a statement. "Inadequate protection of intellectual property rights in China costs U.S. firms and workers billions of dollars each year, and in the case of many products, it also poses a serious risk of harm to consumers in China, the United States and around the world."

Chinese officials criticized the action by the U.S. trade officials.

"The decision runs contrary to the consensus between the leaders of the two nations about strengthening bilateral economic and trade ties and properly solving trade disputes", Wang Xinpei, spokesman with China's Ministry of Commerce said in a statement posted to the ministry's Web site on Tuesday.

He also warned that the action by the United States would seriously undermine future trade and economic relations between the two trade superpowers.

U.S. files piracy complaint against China