China Reports Unexpected Trade Deficit as Export Growth Cools

China reported an unexpected $7.3 billion trade deficit, the biggest in seven years, buttressing the government’s case against U.S. arguments for faster gains in the yuan.

Exports rose 2.4 percent in February from a year before, the least since 2009 as Lunar New Year holidays disrupted shipments, and imports climbed 19.4 percent, customs bureau data showed today. Central bank adviser Li Daokui said that the full- year trade surplus will shrink from the 2010 level.

Yuan forwards dropped after today’s release as investors pared bets on the appreciation of China’s currency against the dollar. Premier Wen Jiabao aims to spark domestic demand and reduce the role of exports in the economy through wage increases, rather than the exchange-rate gains sought by the Obama administration.

The swing in February to a trade deficit may aid central bank officials working to prevent an excess of cash in the financial system from worsening inflation that has already breached the government’s 4 percent target for 2011. Pressure for more increases in banks’ reserve requirements may ease, Bank of America-Merrill Lynch said in a note.

Economists combine Chinese data for the first two months of the year to eliminate distortions caused by the annual holiday. On that basis, the nation had a deficit of about $890 million, compared with a surplus of about $22 billion a year earlier.

Higher costs for imports of commodities played a role. The average price for the nation’s 120 million tons of iron ore imports over the first two months was $154.3 per ton, 63 percent more than a year earlier, the customs bureau said. Oil and soy- beans costs also jumped.