China's trade surplus plunged to $6.87 billion in March, confounding expectations it would be close to February's near-record $23.8 billion, but analysts said special factors were responsible and the underlying trend had not changed.
Annual export growth swung to a five-year low of 6.9% from 51.7% in February, customs data showed on Tuesday, as exports of products ranging from clothing to furniture plummeted.
"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 U.S. 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 and textiles. More such changes have been expected so some firms may have accelerated shipments.
The China Iron and Steel Association said on Tuesday that Beijing would remove export rebates on 83 types of steel and reduce the rebate on others, effective April 15.
The customs administration said in a statement that the March figures indicated the trend of a widening surplus was obviously subsiding.
However, 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 first-quarter surplus came to $46.44 billion, twice that in the first quarter of 2006. The rolling 12-month surplus fell in March to $200.8 billion from $205.2 billion in February, but it remained significantly above the full-year 2006 figure of $177.5 billion.
Annual import growth in March alone reached 14.5%, up slightly from 13.1% in February.
Yuan in Focus
Anger in Washington over China's large surplus has prompted the U.S. administration to take a number of steps to address what it considers unfair practices by Beijing.
Most recently, it announced on Monday that it was filing two cases against China at the World Trade Organisation (WTO) over copyright piracy and restrictions on the sale of U.S. books, music, videos and movies.
"This number will do nothing, zilch, nada, to address political concerns in the U.S. about China's overall trade surplus," Stephen Green with Standard Chartered Bank in Shanghai wrote in a research note.
Wang at Bank of America said the large surplus was not only fanning protectionism in the United States, it was endangering 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 gushing liquidity 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, but many economists say that to turn off the flow of cash at source, it needs to let the yuan appreciate further.
The yuan has gained just 4.8% since it was revalued by 2.1% in July 2005 and allowed to float in managed bands. It fell on Tuesday as news of the trade data spread, hitting an intraday low of 7.7354 against the dollar.
Still, Goldman Sachs economists in Hong Kong said in a note to clients that the significant increase in the 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 wrote.