CHINA reported a trade deficit of US$7.3 billion in February, the first since last March and the biggest in seven years as imports growth outpaced that of exports.

Due to the Spring Festival holiday which disrupted trade activities, growth in both exports and imports moderated dramatically last month.

February was the first time since last March that import growth outpaced that of exports.

Exports only edged up 2.4 percent from a year earlier to US$96.7 billion in February, the slowest pace since November 2009, while imports expanded 19.4 percent to US$104 billion, the General Administration of Customs said yesterday.

They compared with the export rate growth of 37.7 percent in January, with imports up 51 percent.

"The unexpected moderation in trade is more technical (related to the timing of the Lunar New Year) rather than reflecting a faster-than-expected deterioration in fundamentals," said Wang Qing, an economist at Morgan Stanley.

He suggested the correct way to interpret the data is to compare January-February trade combined.

The big picture is that export growth remains very robust, in line with data from other countries in the region, and the rise of imports, which is an indication of strength of domestic demand, is even stronger, said Wang.

In the first two months, China's exports gained 21.3 percent annually to US$247.47 billion, while imports climbed 36 percent to US$248.36 billion, or a trade deficit of US$890 million.

But other analysts did not agree. Xu Biao, an economist at the China Merchants Bank in Shenzhen, told Reuters that "Both imports and exports are lower than expected, and seasonal factors alone can't explain the sharp monthly drop."

However, Xu did not elaborate on what he believed was stalling trade expansion.

Commerce Minister Chen Deming said on Monday that China's foreign trade growth will slow this year due to a number of domestic and international factors. These include: exchange rate fluctuations; increasing protectionism; higher cost of raw materials and labor; as well as a shortage of domestic workers for assembly lines.

Chen said there will still be a mild increase in exports this year while imports will expand rapidly as the country steps up efforts to restructure the economy, push forward its free trade agreements and improve import regulations.

What can be certain is that a trade deficit will ease pressure for the appreciation of the yuan.

"Persistent trade surplus in China is always cited as a core factor in demands for a stronger yuan," said Xue Jun, an analyst at CITIC Securities Co. "Now the argument is losing a solid foothold."

The Chinese currency closed at 6.571 per US dollar yesterday and has appreciated nearly 4 percent since last June when China announced it was relaxing its control over the exchange regime.

Chen said the trade surplus will narrow this year, and he could not rule out that China would see trade deficits "in some months."

China's trade surplus fell 6.4 percent annually in 2010 to US$183.1 billion.

The European Union remained China's biggest trading partner with bilateral trade at US$76.2 billion in January-February, up 16.3 percent from a year earlier.

Shanghai's trade expanded an annual 22.3 percent to US$59.6 billion in the past two months, topped only by Guangdong Province and Jiangsu Province.