CHINA'S trade surplus unexpectedly dropped 38.6 percent in March year on year as growth in exports slowed due to seasonal reasons, stumping market projections.

The surplus, which totaled US$6.87 billion last month, narrowed from the US$23.76 billion in February and US$15.88 billion in January, the customs bureau reported yesterday.

"The result (March surplus) caught the market by surprise," said Stephen Green, a senior economist with Standard Chartered Bank, who predicted the surplus to be US$19.9 billion.

"It lends more weight to the view that February's extraordinary export number was the result of exporters en masse bringing forward March orders to avoid a further reduction of rebates threatened by the Ministry of Commerce."

China's exports gained 6.9 percent to US$83.43 billion last month while imports rose 14.5 percent to US$76.56 billion, against year-on-year exports growth of 51.7 percent in February and 33 percent in January.

Vice Commerce Minister Gao Hucheng said earlier this week the jump in the trade surplus in the first two months was partly because this year's Spring Festival was later than in previous years.

China is accelerating the restructuring of its economy by shoring up domestic demand to reduce its massive trade surplus, Gao said. Policies which became effective at the end of last year will show their effect this year, he said.

The country cut the export rebates in major industries such as steel and is considering to slash the rebates on textiles later. Meanwhile, the country urged bigger imports of technologically advanced equipment and pledged to cut the red tape for such imports, industry officials said.

"The easing of the trade gap is expected to alleviate trade tensions between China and major trading partners such as the United States," said Li Mingliang, an analyst with Haitong Securities. "It will also relax the pressure for the yuan to appreciate against the (US) dollar."

The US trade deficit with China jumped to a record US$232.5 billion last year. Industry experts said the trade picture will go back to a normal growth track for the rest of the year.

"But we expect to see monthly export growth quickly return to a trend of around 25 to 27 percent year on year," said Green.

Separately, the United States levied duties last month on coated-paper imports from China on charges that they were subsidized. It has filed two complaints to the World Trade Organization complaining of piracy of movies, music, software and books in China.

China's Ministry of Commerce said the tariffs on coated-paper were "unacceptable" and said it reserved the right to take "necessary" action.