Rare China trade deficit "does not fall apart" rising yuan

BEIJING (Reuters) - China reported its first monthly trade deficit in six years, but a customs official said the fall was a blip and economists doubt that they will get in the way of an early rise of the yuan.

The deficit of 7240 million dollars in March, the first time that the trade balance has been in red since April 2004, mainly reflects large imports of raw materials and vehicles, said Saturday the General Administration of Customs.

The level of both exports and imports was higher than March 2008, before the global credit crisis reached its climax.

China's leaders have said they want to be sure that exports have a significant recovery before removing the anti-crisis policies, including the freezing of the exchange rate of the yuan against the dollar, imposed in July 2008.

"The trade deficit is likely to be cited as evidence that trade flows are adjusting despite the lack of change in the currency, but do not think that will be enough to derail the shift to a stronger yuan in the coming months," said Brian Jackson, an economist at Royal Bank of Canada, in a note at the Boao Forum for Asia.

Henry Paulson, former Secretary of U.S. Treasury, told the conference that takes place on the island of Hainan, south China, which is China's interest to have a more flexible exchange rate to reduce inflation and help change growth toward domestic consumption and away from exports.

"You have to recognize that America is a symbol of China's commitment to continue reforms. My message to my Chinese friends is that this is something that should be taken seriously and managed to continue having progress," he said.

The successor to Paulson, Timothy Geithner, made a quick visit to Beijing on Thursday on his return trip to India, prompting speculation that the resumption of the rise of the yuan could occur soon.

Gao Yi, an economist at Orient Securities in Shanghai, said the March trade deficit could serve as another excuse for Beijing to slow the rise of the yuan, but said China may allow the currency began to appreciate this quarter or next.

Yuesheng Zheng, chief statistician of the customs agency, said China probably will remain a country with a surplus in the long term. The March deficit was a temporary problem, told state television.

(Additional reporting by Langi Chiang and David Stanway in Boao)