China's trade surplus plummeted 64% in February 2008, as blizzards disrupted shipments and U.S. demand weakened, China's Xinhua News Agency reported Monday.

China's trade surplus narrowed to $8.56 billion in February 2008. The trade surplus totaled $19.5 billion in January 2008.

Economist surveyed by Bloomberg News had expected the February 2008 surplus to total $22.5 billion.

Exports increased 6.5% -- the slowest pace in almost six years -- indicating government efforts to cool the economy are working, to a degree (China's economy grew at a 11.2% rate in Q4 2007). Meanwhile, imports increased 35%, with a portion of that due to rising commodity prices, which lowered the trade surplus.

Also, for the first two months of 2008, China's trade surplus fell 29% to $28 billion.

Economic Analysis: China's February 2008 surplus, like January 2008's, displays the effects of the large snowstorms that disrupted commerce throughout the Asian nation. Also, the week-long Lunar New Year holiday occurred earlier than it typically does -- another idiosyncratic event that hurt exports. Still, China's trade surplus has fallen for four consecutive months, suggesting both the government's effort to cool the economy and the slow-growth/recession conditions in the United States may have spelled 'the beginning of the end' for China's massive trade surplus period.

Is China's trade surplus finally trending lower? One economist specializing in China's economy said possibly. but we won't know for certain for a few months.

China's trade surplus totaled $19.4 billion in January 2008 -- the first time the surplus has been below $20 billion in the last three months, The Associated Press reported Friday, citing the government's Xinhua News Agency. Exports rose 26.7% to $109.7 billion, while imports grew 27.6% to $90.2 billion.

U.S. consumer pullback?

"We may be starting to see the impact of the U.S. consumer pullback on China's exports to the U.S.," economist David H. Wang told BloggingStocks Friday. Wang was born and lived in China for more than twenty years before moving to the United States for graduate study. "If the U.S. economy continues in slow-growth mode, I suspect China's sales to the U.S. will continue to slow."

According to the Chinese customs bureau, China's December trade surplus narrowed in December. With the country's trade surplus shrinking, and its money supply narrowing, we may finally be seeing signs that the country's massive economic growth may be coming to an end.

The Beijing central bank reported the November trade surplus fell to $22.7 billion from $26.2 billion. M2, which is the broadest measure of money supply, gained 16.7% to 40.3 trillion yuan ($5.55 trillion) from a year earlier. It was the smallest rise in seven months.

China is beginning to feel the effects of recent yuan gains, weaker global expansion and cuts to export-tax incentives. As a result, its exports rose by the slowest pace in two years. As we discussed, China still plans to strengthen credit controls to avoid financial problems and a possible inflation surge. Wang Tao, an economist at Bank of America Corp. in Beijing, said that "China needs to tighten monetary policy further, given that new loan growth may rebound' as recent signs shows that the country's "economic expansion may have peaked last year."

China announced Wednesday it will tighten its monetary policy in 2008 for the first time in a decade to slow its surging economy, Channel News Asia reported Wednesday.

China said it would shift monetary policy from prudent to tight, but gave few specific details regarding the policy.
At the same, The Wall Street Journal reported that China's State Information Center, a think tank under the National Development and Reform Commission, said in a report published in the China Securities Journal that China should let the dollar-yuan rate move as much as 1% above or below the central parity rate [subscription required] in each daily trading session, up from 0.5% now.

China's sizzling economy has grown by over 10% annually for more than four years, and many economists expect another double-digit GDP gain in 2007, despite the Chinese government's effort to cool the economy. In 2006, China's GDP totaled $10.2 trillion in purchasing power parity terms and $2.5 trillion in real terms, according to research by the U.S. Central Intelligence Agency.

As investors, we are blessed by the willingness of hedge fund operators to write letters to investors that describe the current financial situation. One such letter helps me understand how financial alchemy transformed subprime mortgages into AAA-rated paper eagerly consumed by European and Asian investors eager to recycle the cash generated by high oil prices and trade surpluses with the U.S.

Barron's [subscription required] excerpted this letter from "A (bearish) hedge-fund operator," in a letter to his investors, describes how a senior Wall Street marketing director recounted the genesis of the current situation:

"'Real money' (U.S. insurance companies, pension funds, etc.) accounts had stopped purchasing mezzanine tranches of U.S. subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to 'mark up' these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!

During the month of July, China had yet another very impressive trade surplus, showing a 67 percent jump year over year to $24.4 billion. The country has been under serious scrutiny regarding its currency controls, but still denies that it is trying to manipulate a surplus.

July's figures are sure to spark more debate over what to do with the Chinese trade situation.

Last year America had a trade deficit of $232.5 billion with China, its largest one-year deficit with one country in history. This year analysts are predicting that number to increase.

While it is true that the Chinese government has been trying to curb the difference by adding exports on some of its goods and taking back rebates on taxes of certain goods, the impact of these efforts has been negated by lower import levels of many high dollar items. The country has been undergoing massive growth over the past several years, and the country has been trying to cool the country's growth by slowing down construction, which has lowered its import levels.

It just goes to show that even with all the recent bad press over harmful Chinese imports, Americans are still gobbling up cheap Chinese goods as fast as they can.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

Barron's roundtable is having trouble discerning a strong trend in 2007's economy and securities markets. The Goldman Sachs Group's (NYSE:GS) market analyst Abby Joseph Cohen, who accurately guessed that the S&P 500 would end 2006 at 1,400 -- it actually closed at 1,418 -- expects a 9% rise to 1,550 by the end of 2007. This precision masks significant confusion about the factors driving 2007's prospects.

I always enjoy reading Barron's annual roundtable, which pits savvy money managers against each other to predict what will happen to the economy and the market before they pick stocks for the coming year. This year's debate pits Fred Hickey, a New Hampshire newsletter writer, who thinks that a housing collapse and sluggish tech sales will lead to a big correction, against Cohen and others money managers -- who believe that global liquidity will bail us out.

Alan Abelson, Barron's editor, spent much of 2006 supporting the housing collapse school of thought. As I've posted here, here, and here, the housing collapse theory seemed persuasive. But I am now questioning the housing collapse argument because, although the economy has slowed down, it hasn't collapsed. There are at least three possible explanations:

1. The housing collapse is too small a part of the overall economy to sink it;
2. The collapse is taking longer than expected and it will play out in the future; or
3. Global liquidity is offsetting the impact of the housing collapse.

At this point, I am leaning towards explanation three, with a dash of one and two thrown in for good measure.

Updated 9:15 a.m.

So much for the Dow beating its record. A day ago it looked like the Dow could reach an all time high of 11,723. But this morning stock futures are down sharply and yesterday the Dow fell 142 points.

The worries plaguing stocks now seem (at least to me), to be problems that have been around for a while -- the falling dollar, higher oil, higher gold, and the potential for the Fed to keep raising interest rates -- and traders weren't worrying so much about them just days ago 

What seems new -- and potentially dangerous to the U.S. economy -- is growing tension with China over its currency. The Treasury decided yesterday not to label China a "currency manipulator." Seems like a smart move, especially after reading this story in the Wall Street Journal (subscription required): "China Sans Manipulator Tag May Let Yuan Rise."

A rising U.S. trade gap with the rest of the world could heighten political pressures. But the latest trade figures, reported today at 8:30 a.m., provided better-than-expected news. The April trade gap was $62 billion when ecomomists thought it would be $67 billion. Earlier today China reported a trade surplus of $10.5 billion in April.

Also today we'll see a measure of consumer confidence developed by the University of Michigan. It will be closely watched as investors worry about the health of the consumer given higher gas prices.

Here's a look at some key Blogging Stocks this morning:

Apple (AAPL) shares are down 34 cents to $67.81 as of 9:12 a.m.  French legislators are weighing a new law that would  require Apple to open up iTunes to other music players.

Google (GOOG) is down $1.89 to $385.11 as of 9:13 a.m. Shareholders voted yesterday to let Google's founders hold onto the bulk of voting power. Read our live blog of yesterday's meeting.

Yahoo! (YHOO) is down 20 cents to $30.79 as of 9:12 a.m. CEO Semel spoke about pressures to provide information about users to Chinese authorities.

eBay (EBAY) is down 7 cents to $31.95 as of 9:13 a.m.