UPDATE: Chinas Strong December Trade Shows Economy On Rebound

(Updates with additional data, adds analysts' comments)

By J.R. Wu, David Winning and Chuin-Wei Yap

Of DOW JONES NEWSWIRES

BEIJING (Dow Jones)--China's exports surged in December from a year ago, ending 13 months of declines. Despite the rebound in external demand, though, the country's annual trade surplus dropped as expected for the first time in six years as the global financial crisis hit home.

The surprising rally in imports, up 56% last month, came as China's crude oil imports hit a record monthly high and its iron ore imports were the second highest on record, signaling strong domestic demand due to the government's stimulus package reviving the national economy.

The sharp improvement in China's trade last month--the top trading partner for many countries and the world's largest exporter--should give a lift to investor confidence that the world's third largest economy will continue to hold up demand as the rest of the global economy gets back on its feet.

It also flags the chance that China's economy expanded at a double-digit, year-on-year growth rate in the fourth quarter of last year, from the 8.9% expansion made in the third quarter, and stoking the debate among Chinese policymakers about a timing for exit strategies from Beijing's expansionary policies.

"Growth in exports is expected to be strong in the coming months due to steady improvement in external demand combined with low base effects. Continued recovery in China's industrial sector should support increased demand for energy and raw material imports," said Jing Ulrich, chairman of China equities and commodities at J.P. Morgan.

Royal Bank of Canada Capital Markets senior strategist Brian Jackson said the yuan may have an excuse to strengthen from the end of the current quarter as China's exports grow again. Critics say Chinese exporters enjoy an unfair advantage in global markets because the yuan is undervalued as it pretty much tracks the movements of the U.S. dollar.

"Positive export growth will also likely increase the global pressure on Beijing to allow some currency appreciation, while also making it easier to justify such a move to domestic audiences," Jackson said.

China's exports last month surged 17.7% to $130.7 billion as imports grew to $112.3 billion, resulting in a trade surplus in the month of $18.43 billion, data issued Sunday by the General Administration of Customs showed.

Economists polled by Dow Jones Newswires had expected exports to grow 5% and imports to increase 31% in December. China's exports last grew on a year-on-year basis in October 2008.

For 2009, China's exports fell 16% to $1.202 trillion and imports slid 11.2% to $1.006 trillion, customs said.

China's trade surplus last year just topped $196 billion, falling 34% for the year and recording its first annual drop since it fell 16% in 2003.

Among categories of imports, China's crude oil imports hit a record 21.26 million metric tons in December, equivalent to 5.03 million barrels per day, the data showed, partly on a push by state-owned refiners to have enough fuel in reserve ahead of the Spring Festival holiday next month.

For all of last year, crude oil imports rose 13.9% to 203.79 million tons, likely cementing China's place as the second-largest importer of crude oil after the U.S. in 2009, leapfrogging Japan whose oil demand stagnated when its economy slid into recession.

China's commodity imports trumped market expectations of a winter slowdown, underscoring an unabated hunger for key industrial products.

China imported 62.16 million metric tons of iron ore in December, 80% more than a year earlier and the second highest volume on record, the data showed. The iron ore imports were up 22% from the month before.

The rise underlined there was no let-up in the country's hunger for the steel making ingredient.

For the full year of 2009, China imported 627.78 million tons of iron ore, up 41.6% on 2008, reinforcing China as the world's biggest importer of iron ore.

The high import volume points to traders and steelmakers moving to stock up on the steelmaking ingredient, ahead of market expectations that annually-set benchmark prices are poised to rise some 20%.

Copper imports also rose strongly last month, reaching 369,368 tons, a 27% increase over November and up 29% on year, bringing the increase for all of last year to a strong 62.7% or 4.29 million tons.

For the year, China's trade with the European Union, its top trading partner, fell 14.5% to $364 billion as exports to the E.U. slumped 19.4% to $236 billion. China's trade with the U.S., its second largest trading partner, sank 10.6% to $298 billion as exports fell 12.5% to $221 billion.

China's imports from Australia, a key source of iron ore and other raw materials, finished 2009 just 5.4% higher, but imports from Brazil fell 5.3%.

-By J.R. Wu, Dow Jones Newswires; 8610 8400-7799; jr.wu@dowjones.com