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2012 trade deficit is likely, say economists

By He Wei, Cai Xiao and Li Jiabao (China Daily)

10:53, January 10, 2012

BEIJING / SHANGHAI - China is likely to face a trade deficit in 2012, partly driven by the deteriorating eurozone crisis and a possible debt default by Greece, economists warned on Monday.

Stephane Deo, managing director of European Economic Research with UBS AG, said China's 2011 exports to the European Union (EU) registered the worst performance among the country's main trading partners. The high likelihood of a default by debt-ridden Greece, which some analysts predict will happen in March, will further drag down the trade volume, making the first quarter the toughest for Chinese exports.

Deo said that no agreement has been reached for a reduction of Greek debt.

Athens is pinning its hopes on a new 130 billion euro ($165 billion) bailout package from its European partners and the International Monetary Fund (IMF), without which it may easily slide into a debt default.

But the state of current negotiations means that the chances of a bailout package are slim, resulting in high stakes not just for Greece but also the entire eurozone, Deo said.

A UBS report estimated that any country leaving the eurozone would incur a cost of between 9,500 and 11,500 euros per person during the first year following departure, equating to between 40 and 50 percent of GDP.

"If the panic spreads to problematic Italy and Spain, the cost of insuring their debt against default would soar to record levels, and the consequent depression would result in plummeting demand," said Deo.

Any default would have a limited direct effect on Chinese exports, given the marginal share Greece occupies in the European economy.

However, "if it spreads to other EU members such as Italy and Portugal, China's exports would be greatly affected", said Wang Haifeng, director of the International Cooperation Center affiliated to the National Development and Reform Commission.

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