China's trade surplus narrowed in 2010 for the second straight year, giving Beijing grounds to rebuff U.S. pressure for faster currency appreciation ahead of President Hu Jintao's visit to Washington next week.
The Chinese government will point to the latest numbers as evidence that it is making steady progress in rebalancing its economy toward domestic consumption, cutting reliance on exports and giving the world a lift through surging demand for imports.
For the United States, however, this may be happening too slowly, with the politically sensitive bilateral trade gap between the world's two biggest economies widening further in 2010.
But the month of December alone was consistent with what has been a pattern since the outbreak of the global financial crisis more than two years ago. With the Chinese economy growing much faster than the rest of the world, imports outshone exports.
China's December exports rose 17.9 percent from a year earlier and imports increased by 25.6 percent, the customs agency said on Monday.
That left the country with a trade surplus of $13.1 billion, well down from analysts' expectations of a $20 billion figure and the lowest in eight months.
Imports are much stronger than we have expected, indicating that the domestic investment and internal demand are mainly pushing up domestic consumption, said Wang Han, an economist at advisory firm CEBM in Shanghai.
For all of 2010, China's trade surplus was $183.1 billion, down 7 percent from $196.1 billion in 2009. The surplus had fallen 34 percent in 2009 from its pre-crisis peak of nearly $300 billion in 2008.
This could reduce the pressure for yuan appreciation and also remove some pressure for the central bank to imminently launch aggressive tightening, said Wang Hu, an economist with Guotai Junan Securities.
Along with quickening the pace of yuan gains, the government raised interest rates twice and banks' required reserves six times last year to rein in inflation.
A smaller trade surplus means that less money is flowing into China, decreasing the central bank's urgency to mop up the excess cash in the economy that has pushed prices higher.
Beijing has let the yuan rise 3 percent against the dollar since mid-June, when it lifted the currency from a nearly two-year peg that cushioned the economy from the impact of the global financial crisis.
Critics in the United States say that China keeps the yuan cheap to give its exporters an unfair advantage in selling their wares to the world.
These long-standing complaints have taken on added potency in the wake of the financial turmoil that has left the United States with an unemployment rate of 9.4 percent.
But Beijing has counseled for patience, repeatedly pledging to reduce its economy's reliance in exports and to seek a more balanced trade relationship with the rest of the world.
It has begun to move in that direction on the back of surging imports of oil, iron ore, copper and other raw materials needed to fuel its economy.
But apart from agricultural goods such as soy beans, the United States provides few of the commodities sought by China. That mismatch showed in another whopping trade gap between the two last year: $181.3 billion, up 26 percent from 2009, according to the Chinese data.
Trade is just one thorn in the side of China-U.S. relations. The two countries also locked horns last year over deadly North Korean attacks on South Korea, Internet censorship, human rights, South China Sea navigation, climate change and valuable rare-earth minerals.
Chinese President Hu will meet U.S. President Barack Obama in Washington on January 19, an event that is being billed as the most important state visit in 30 years.
There are signs that China's overall trade surplus, having narrowed in 2009 and 2010, could rebound this year.
The export order sub-index in the country's purchasing managers' index, a leading indicator of export demand, has been very strong of late, Goldman Sachs economists Yu Song and Helen Qiao noted.
And Li-Gang Liu, an economist with ANZ in Hong Kong, said that improvements in the U.S. jobs market would also shore up global demand.
We still see a robust year ahead for China exports, he said.
(Additional reporting by Koh Gui Qing, Zhou Xin and Langi Chiang; Writing by Simon Rabinovitch; Editing by Ken Wills and Neil Fullick)