UPDATE 3-China trade surplus hits record, but imports strong

(Adds money supply figures, updates stocks, in last 3 paras)

By Jason Subler and Zhou Xin

BEIJING, Nov 12 (Reuters) - China on Monday posted a record monthly trade surplus for October, but the total was smaller than expected, suggesting that policies to restrain exports and promote imports might finally be having an impact.

The figures will be a relief to the Chinese authorities, who are under growing pressure from the United States and the European Union to reduce the imbalance.

The surplus came in at $27.05 billion, surpassing the record of $26.9 billion set in June. It also topped September's $23.9 billion surplus but was well below forecasts of $30 billion.

The final months of the year are usually busy ones for Chinese factories shipping Christmas orders, but exports grew more slowly than imports for the first time since March.

"China has been trying to boost imports this year, and it's time for these policies to start having an impact," said Li Yushi, vice-director of a Ministry of Commerce think-tank. "Of course, higher import prices, including oil, are also a reason."

Exports in October grew 22.3 percent from a year earlier, with imports up 25.5 percent. Economists had expected export growth of 22.4 percent, with imports up 20.0 percent.

"Export growth, I think, will continue to slow to below 20 percent in 2008 because U.S. growth is slowing down and China has tried to control exports itself," said Paul Cavey with Macquarie Securities in Hong Kong.

GRUMPY EU

Beijing has cut or ended value-added tax refunds on a third of export categories and has put obstacles in the way of low-end industries that process imported raw materials and parts for re-export, guzzling energy and causing pollution in the process.

It has also let the yuan rise another 9.5 percent against the dollar since it was revalued by 2.1 percent in July 2005, when it also abandoned a dollar peg to let the currency float within managed bands. The yuan scaled a post-revaluation peak of 7.4108 per dollar on Monday.

To the anger of Brussels, however, the yuan has fallen almost as much against the euro over the same period. Chinese exports to the 27-member European Union are now growing at a 30 percent clip, twice as fast as shipments to the United States.

A high-powered EU delegation is due in Beijing later this month to press its case for a stronger yuan, an issue that will also be on the agenda next month at the latest round of the ministerial-level Sino-American "strategic economic dialogue".

Mingchun Sun of Lehman Brothers in Hong Kong said the flattening trade surplus would moderate China's annual economic growth in the fourth quarter from the 11.5 percent pace of the first nine months.

"However, the huge size of the surplus is likely to put continued pressure on the renminbi to appreciate, and we expect the pace of the appreciation to accelerate in 2008," he said.