Feb. 11 (Bloomberg) -- China posted its first trade deficit in 10 months in January as a reduction in tax rebates for exporters slowed overseas sales.

The trade deficit of $20 million was China's first since March 2003 and compared with a $5.73 billion surplus in December. Exports rose 20 percent from a year earlier to $35.72 billion and imports increased 15 percent to $35.74 billion, the commerce ministry said in Beijing.

China's ninth straight trade surplus last year provoked accusations from the U.S. that the country unfairly helps exporters by keeping the yuan's value fixed to the U.S. dollar and blocks overseas companies' access to the Chinese market. China says the currency link benefits its economy, stoking the nation's demand for goods from the rest of the world.

``The narrowing of China's trade surplus may ease external pressure on it to appreciate the yuan,'' said Wu Yonggang, an analyst with Guotai Junan Securities Co. in Shanghai. ``Before adjusting the exchange rate, China will first try importing more, curbing exports and investing more abroad.''

The yuan's exchange rate, currently held at about 8.3 per U.S. dollar, will remain ``basically stable'' this year, though the exchange-rate mechanism will be improved, central bank Governor Zhou Xiaochuan said today in a statement posted on the People's Bank of China's Web site.

Slower Growth

The reduction of export-related rebates to an average 13 percent of tax bills from as much as 17 percent last year may continue to damp overseas sales through to March. Ahead of the change, exports in December jumped 51 percent, their biggest gain since March 1995, as shipments were accelerated to take full advantage of the rebates.

``First-quarter growth could be quiet because of the export rebate cut,'' said Tai Hui, an economist at Standard Chartered Bank in Hong Kong. ``However, I think Chinese exports will still enjoy double-digit growth in 2004 because of improving external demand.''

Overseas sales will probably grow a fifth this quarter, about half the pace seen in the previous three months, the commerce ministry said Wednesday, citing a study by the National Development Reform Commission. That may help appease the U.S., which says cheap Chinese imports are partly to blame for the loss of 2.7 million U.S. manufacturing jobs since President George W. Bush took office three years ago.

Textiles, TVs

The U.S. government forecast a record $130 billion trade deficit with China for 2003. It has imposed import quotas on Chinese textiles and punitive duties on televisions made in China, and is considering appeals to restrict furniture and shrimps from the Asian nation following complaints that those products are being sold at below cost.

China's southern province of Guangdong, which produces half the televisions China makes for export, shipped 210,000 sets in December compared with 450,000 in September, China Daily reported Monday, citing television makers.

These trade restrictions have done little to dull China's attractions as a manufacturing base. Foreign direct investment, which reached a record $54 billion in 2003, rose 14 percent in January to $4.08 billion, the commerce ministry said in a separate report today.

While the U.S. is complaining about cheap imports from China, other nations, particularly those in the Asia-Pacific region, are benefiting from China's growing appetite for their products. China's imports were a record $42.3 billion in December, exceeding those of Japan, the world's second-biggest economy.

Growth Pole

``China is making a bigger contribution to other countries' growth this year than is Japan,'' John Llewellyn, global chief economist at Lehman Brothers said yesterday at a conference in Hong Kong. ``China is becoming a growth pole in its own right.''

Lehman Brothers predicts China's economy, the world's sixth largest, will grow 8 percent this year. It forecasts the Taiwanese and South Korean economies will expand 6 percent and 6.5 percent respectively. The two countries both count China as their No. 1 export market.

Growth in both China's imports and its exports slowed last month partly because of changes in the timing of the Lunar New Year holiday, which resulted in the nation having 16 working days compared with 22 a year earlier. The Lunar New Year holiday, when Chinese workers get a full week off, started on Jan. 22 this year and Feb. 1 in 2003.

To contact the reporter on this story: Tian Ying in Beijing at ytian@bloomberg.net

Last Updated: February 11, 2004 04:09 EST