BEIJING, March 10 (Xinhua)-- China's monthly trade surplus shrank to 8.56 billion U.S. dollars in February, roughly one third of the level in the same month last year, the General Administration of Customs said on Monday.

    Weakening U.S. demand resulting from the still-spreading sub-prime mortgage crisis was the reason, said Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission.

    The contraction of Foreign Direct Investment (FDI) because of foreign trade policy restructuring also explained the big drop, Zhang told Xinhua.

    Since the government declared its fight against inflation and an overheated economy as the top concern on its 2008 agenda, the gap between exports and imports is expected to continue to narrow, he said.

    The economic situation of both China and the world is becoming more complicated this year, posing more uncertainty for this year's economic and trade tendency, Zhang said.

    In February, imports surged by 35.1 percent to 78.81 billion U.S. dollars while exports rose just 6.5 percent to 87.37 billion U.S. dollars.

    The trade gap was less than half of the January figure of 19.49 billion U.S. dollars. It has been falling for four straight months since last October.

    The country's trade volume in February reached 166.181 billion U.S. dollars, 18.4 percent up from a year earlier, according to the administration.

    Analysts believe the unprecedented snow disaster that hit much of southern China in February was also part of the reason for the shrinking trade surplus.

    The Lunar New Year holiday during which factories halt production also contributed to the decline, analysts said.

    The sharp fall in February will go some way to counter complaints from the United States and from the European Union over China's trade surplus, which hit a record 262.2 billion dollars in2007, up 47 percent year on year.

    Exports to the United States, China's No. 2 trading partner, fell 5.25 percent year on year in February to 15.48 billion U.S. dollars, the customs said, while imports of U.S. goods jumped 47.8 percent to 6.1 billion U.S. dollars.

    Exports to the European Union, China's largest trading partner, grew 1.6 percent to 18.4 billion U.S. dollars from a year earlier while imports from the region soared by 30.43 percent to 8.39 billion U.S.dollars.

    Zhang Yansheng noted the accelerating appreciation of China's currency, the yuan against the U.S. dollar, helped bridge the gap.

    The yuan set a new high on Feb 29, hitting a central parity rate of 7.1058 yuan against one U.S. dollar.

    Over the first two months of this year, the Chinese currency appreciated 2.80 percent and climbed 14.13 percent against the U.S. dollar since a new currency regime was imposed in July 2005 to revalue and de-peg it from the dollar.

    As part of its bid for balanced trade and because of fears about the environment, China moved last year to discourage exports of products that are resources-intensive, such as aluminium and steel, through scrapping or cutting tax rebates.

    Government policy adjustment began to pay off as evidenced by the contracting gap, Zhang said.

    The government, however, should carefully assess the timing of each new policy, considering the huge pressure for small and mid-sized enterprises in order to divert risks and pressure, Zhang suggested.

    If stiffened labor standards, wider export rebate cuts as well as other policy shifts come into force at the same time, small exporters will have little time to cushion themselves against the impact, he said.

    Throngs of exporters in the eastern China has been shifting from exporting to domestic business under tough market conditions.

    China's sizzling economy has been driven largely by foreign trade, and has been endeavoring to rebalance growth away from a heavy reliance on exports and investment towards consumption.

    China's top macro-economic planner Ma Kai said last Thursday that the country's trade surplus is likely to "last for a while yet."

    "One country's surplus is another country's deficit," Ma said. "It will be a long-term global issue in the process of globalization."

    The United States has enjoyed a trade surplus for more than 80 years, Germany has maintained its trade surplus for 55 years since1952, and Japan for 26 years until now, he said.

    The government has listed the slowdown in trade surplus growth and steady expansion of external investment as a major task for 2008, according to Ma's economic planning report submitted to the National People's Congress session last Wednesday.