A port in Rizhao, East China's Shandong Province. China saw a drastic decline for its monthly trade surplus in March to report only about US$6.9 billion, just about 29 percent of that recorded for February. [newsphoto]

China saw a drastic decline for its monthly trade surplus in March to report only about US$6.9 billion, just about 29 percent of that recorded for February, the General Administration of Customs said on Tuesday.

The plunge confounds expectations it would be close to February's near-record $23.8 billion, but analysts said special factors suggested the underlying trend remained strong.

Annual export growth swung to a five-year low of 6.9 percent from 51.7 percent in February.

"My guess is that Chinese exporters rushed to export in the first two months because of concerns over reductions in export tax rebates, leaving them with fewer goods to ship in March," said Zhang Yongjun, an economist with the State Information Centre in Beijing.

Other analysts agreed that March was probably an anomaly and that there would be no let-up in US pressure on Beijing to do more to trim its surplus.

China has introduced a raft of cuts in export tax rebates for products it is trying to discourage firms from sellings overseas, like some basic metals. More such changes are expected so some firms may have accelerated shipments.

Qing Wang, an economist with the Bank of America in Hong Kong, said the trend was still for rising surpluses.

"If you look at the first quarter data as a whole, it is still a very large trade surplus," Wang said. "For the entire year, the trade surplus could be huge.

The surplus for the first quarter came to $46.44 billion, twice that in the first quarter of 2006. Annual export growth for the quarter as a whole reached 27.8 percent, with imports up 18.2 percent. In March alone, import growth was 14.5 percent.

The rolling 12-month surplus fell in March to $200.8 billion from $205.2 billion in February, but it was still significantly above the full-year 2006 figure of $177.47 billion.

YUAN IN FOCUS

Pressure from Washington over China's large surplus has prompted the US administration to take a number of steps recently to address what it considers unfair practices by Beijing, including keeping the yuan undervalued.

On Monday it filed two cases against China in the World Trade Organisation (WTO) over copyright piracy and restrictions on the sale of US books, music, videos and movies.

Washington also recently imposed countervailing duties on coated paper imports from China, a policy shift that could expose Chinese exporters across the board to trade complaints.

Wang at Bank of America said the large surplus was not only fanning protectionism in the United States, it was creating problems for economic stability in China.

The central bank, in an effort to keep the yuan from appreciating too quickly, buys most of the dollars generated by the surplus, for which it must in turn print yuan, flooding the banking system with cash.

Concern that that could lead to further wasteful investment prompted the central bank last Thursday to raise the amount banks must hold in reserve for the sixth time since June.

Goldman Sachs economists in Hong Kong said in a note to clients that the significant increase in the trade surplus for the first quarter underlined the need for the People's Bank of China to do more about the value of the yuan.

"We reiterate our view that faster yuan appreciation is a more efficient policy measure to eventually reduce external imbalances and the need for large-scale sterilisation operations while preserving domestic demand growth," they said.