China's trade surplus plunged 64 percent to $8.6 billion in February, far below market expectations.

Export growth decelerated sharply to 6.5 percent year-on-year, compared with 26 percent in the same period in 2007 and 27 percent in January.

Growth in imports surged 35.1 percent year-on-year, compared with 21 percent in 2007 and 27.6 percent in January.

The Spring Festival holiday, which lasts 15 days for many exporting firms, was the major reason behind the export drop, said Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation.

Extreme weather in January and February, which led to widespread power and transportation disruptions, also affected production and exports, the researcher added.

Some analysts suggested the drop in export growth reflects a slowdown in US-led external demand.

"Export growth to the US has decelerated steadily over the past year, reflecting weaker US demand for imports as well as the strengthening Chinese currency against the US dollar," said Wang Tao, head of economics and strategy, Bank of America Greater China.

Changes in export-rebate policy were also cited as a reason.

"Export growth surged 52 percent year-on-year in February 2007 as exporters rushed to beat widely anticipated cuts to VAT rebates. This, in effect, created a high base, from which last month's growth was calculated," said Li Jing, chairman of China Equities, JP Morgan Securities.

Also, the Spring Festival boosted domestic demand for luxury or imported goods.

"It is a tradition for Chinese to reward themselves with something extravagant, such as branded clothes, or even a car, during the holiday, which can cause higher demand for imported goods compared with other months," Mei explained.

Bank of America believes the underlying export and economic growth momentum remains much stronger than suggested by February data, and expects GDP to grow by 9-10 percent this year, with a sizable trade surplus of around US$260 billion, roughly the same as last year.

JP Morgan expects export figures to rebound this month, but anticipates a more moderate slowdown in export growth over the course of the year.

Meanwhile, soaring commodity prices continue to boost the value of imports - February marks the fifth month in a row that imports have grown faster than exports.

Separately, China's producer prices gained 6.6 percent in February from a year earlier - the fastest rate since December 2004. This again reflects rising cost pressures for a range of commodities and basic inputs, Li said.

Goldman Sachs expects export growth momentum to weaken in the coming quarters, and believes this will more likely be a gradual process.

Goldman Sachs Asia Economics Research Group said it expects the combined January-March data to be a much better gauge of growth momentum. It expects the combined January-March surplus to be significant at US$28 billion.

(China Daily March 11, 2008)