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China: Trade deficit $540m in March

Jump in imports brings total figure to $8.4b in 2004

BEIJING -- Driven by record imports, China's trade deficit rose to $540 million in March, making its total deficit for the first three months of the year $8.4 billion, state-controlled media said yesterday.

Imports in March rose 42.8 percent to $46.4 billion, while exports were up 42.9 percent at $45.8 billion, the reports said.

Customs officials said the sharp rise in imports was driven by ''the country's sustained need for raw materials and energy" for its booming economy, said the website of the Communist Party newspaper People's Daily.

China's overall trade has fallen into deficit despite rising tensions with Washington over its trade surplus with the United States, which hit a record $124 billion last year.

The shift is due in part to Beijing's efforts to encourage Chinese consumers to spend more, creating new sources of growth for an economy that relies heavily on manufacturing exports.

Total exports for the first three months of the year rose 34.1 percent to $115.71 billion, while imports were up 42.3 percent at $124.14 billion, news reports said.

State media say China's economy grew by more than 9 percent in the first quarter of this year, almost even with its blistering pace of 9.1 percent for all of last year.

Chinese leaders, fearing possible inflation, say they plan to rein in that breakneck expansion, but they still are projecting an overall growth rate of more than 7 percent this year.

In another development, China's central bank is boosting the financial reserves that banks are required to hold to guard against inflation and reduce financial risks.

''Excessively fast growth in lending could add to inflationary pressures or cause a bubble in asset prices that could add to the amount of bad loans, adding to financial risks," the People's Bank of China, or central bank, said in a notice issued yesterday.

The comments followed a pledge by China's Cabinet to do more to curb excessively fast growth in lending for construction projects and to counter other ''conspicuous contradictions" in the economy.

''Some problems are still developing, including excessively fast expansion of investment," the state-run Xinhua News Agency reported, summarizing the outcome of a Cabinet meeting on the economy Friday.

''Investments are irrational," said the report, posted on Xinhua's website. ''There are too many new projects and the scale of construction is too big. In some industries blind investments and the problem of low quality, redundant construction is very severe."

The central bank said late Sunday that most banks will be required to hold reserves equal to at least 7.5 percent of their outstanding loans and other capital commitments. The level for some weaker banks was set at 8 percent.

The step takes effect April 25 and is the third tightening of reserve requirements in eight months. The central bank set the reserve requirement at 7 percent in August. In late March, it raised that to 7.5 percent for weaker banks not meeting certain capital adequacy standards.

The international recommended minimum is 8 percent, but many Chinese banks do not meet it.

Bad loans already total some $250 billion at China's state banks, according to the China Banking Regulatory Commission. Foreign analysts say the figure is higher, especially at smaller banks and rural credit cooperatives.

Regulators fear that excessive lending by commercial banks is supporting booms in real estate development and in certain industries -- such as auto manufacturing, steel, and aluminum -- that could lead to supply gluts and trigger a financial crisis.

Outstanding bank loans have already grown by more than 20 percent so far this year from last year.

Sunday's measure is expected to remove $13.3 billion from the financial system, the central bank said.

A change in the reserve requirement is considered one of the bluntest tools a central bank can use to reduce money in circulation. Too much cash can fuel inflation.

Fast growth in investments in construction and new factory equipment -- which surged 53 percent in the first two months of 2004 than the same period in 2003 -- appears to have raised fears that earlier hikes in the reserve requirement may not have done enough to discourage excess lending.

The Cabinet cited an acute need to relieve shortages of energy and transport capacity that have pushed prices for fuel and some other commodities higher, Xinhua said.

Industrial output rose 19.4 percent in March over the same month a year earlier, the government reported. Industrial output for the first quarter was up 17.7 percent.

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