China's trade surplus narrowed for a second straight month in September to $14.5 billion, with both imports and exports lower than expected, reflecting global economic weakness and domestic cooling that will deepen policy quandaries facing Beijing.

The trade data issued today laid bare trends at the heart of Beijing's debate about how to handle US pressure for a higher yuan while seeking to protect both export-driven jobs and tame inflationary pressures.

Moments after the data was released, a deputy chief of China's customs agency staked out one position in that debate, saying a higher yuan is already hurting exports.

"The rise in the renminbi exchange rate may limit the room for export growth," Lu Peijun, the deputy head of the Chinese customs administration, said at a news conference about the data. The renminbi is another name for the yuan.

"China is still facing relatively big imported inflationary pressure and trade conditions are also deteriorating," said Lu.

Many traders are already wagering Beijing will tighten its leash on the yuan, which fell against the dollar after the central bank set a sharply weaker mid-point for daily trading. Forwards markets are pricing in depreciation of the currency in the year ahead.

But other influential Chinese voices, including an official newspaper today, say Beijing may be preparing for a widening of the yuan's daily trading band to help fend off speculators and inflation.

September's trade surplus was smaller than August's $17.8 billion and less than half of the $31.5 billion recorded in July. The annual pace of exports to the troubled European Union more than halved from August.

China's annual inflation stood at 6.2 per cent in August, and leaders have said taming price rises remains a priority.

Both imports and exports were weaker than forecast by economists in a Reuters poll and several analysts said no rebound is in sight.

Exports rose 17.1 per cent last month from a year ago, slowing from a 24.5 per cent gain in August, and imports rose 20.9 per cent, compared with August's 30.2 per cent increase.

Still, the value of China's imports and exports are near record highs.

China's economic growth - which has averaged around 10 percent for a decade - has slowed this year as the global recovery from the credit crisis stumbled. Second-quarter growth of 9.5 per cent was the weakest since late 2009.

Reflecting some concern about the slowdown, China yesterday unveiled measures to support cash-starved small businesses, which account for 75 percent of employment.

Still, if the world did slip into another full-blown economic crisis, China had the means to support its economy, said Anoop Singh, head of the IMF's Asia and Pacific department.

"I would say China has the scope to respond were these downside risks to materialise. What's important to notice is that even China's response would offset a part of the shock. It could not offset entire shock," Mr Singh told a news conference.

A breakdown of China's trade numbers showed shipments of major export and import items slowed markedly.

Compared to August, annual growth in China's electronics exports slowed by a third to around 13 per cent, while that for high-tech shipments more than halved to 6.3 per cent.

Annual growth in China's commodity imports also slowed. Crude oil shipments fell 12 per cent from a year-earlier record level after holding steady in August.

For iron ore imports, annual growth more than halved to 15 per cent compared to August, although the volume of shipments was at an eight-month high.

China could point to its reduced trade surplus as evidence that it is moving to deal with economic imbalances that have riled lawmakers in the United States, who point to US trade deficit as evidence that the yuan is drastically under-valued.

The US Senate approved a controversial bill on Tuesday aimed at forcing Beijing to push the yuan higher against the dollar, which supporters argue would reduce a US trade deficit with China of more than $250 billion.

In month-on-month terms, China's exports rose in September after calendar adjustment by 1.6 per cent, versus a decline of 3.3 per cent in August and a rise of 5.4 per cent in July.

China's overall balance of trade with the United States, however, remained unchanged in September from August; in both months China recorded a $20 billion surplus.

China's trade surplus with the European Union was $12.9 billion in September, down from $14.8 billion in August.

Although the fate of the US currency bill is uncertain, it has drawn sharp rebukes from Beijing. The central bank argued that a stronger yuan would not on its own reduce the bilateral trade imbalance nor save American jobs.

Reuters