Since March 2010, this is for the first time that China has reported a trade deficit and the news has really shocked the people in the trade. Imports went up by 19.4% and this helped the trade deficit to go up by $7.3 billion. This is the highest trade deficit of China in seven years.
Of late, China was being continuously criticized by USA because of their export led growth policy. To fuel that growth, they were keeping the value of their currency, yuan quite low so that it can help in boosting up the foreign sales.
If the currency is weaker, it will give the exporters an advantage over their competitors as the goods available will become more competitive. US has been repeatedly asking China to appreciate their currency against the US dollar. Authorities feel that the trade deficit will help the pressure of appreciation on yuan to lessen down.
China growth during the last decade was fully led by exports and after the recession, China has focused on domestic markets more. A shift in the policy happened after there was a slowdown in the USA and European markets. The domestic demand was supposed to grow by 30% and on the contrary, it was found to grow by 19%. The not so high demand of the domestic economy is also a factor that the economy is not going at the rate at which it is supposed to move.
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