Growth in China's exports and imports last month blew past expectations, providing fresh evidence of the vigor of the economy and strengthening the case for Beijing to let the yuan start climbing again.

Exports leapt 17.7 percent from a year earlier, dwarfing the 4.0 percent rise forecast by economists and breaking a 13-month streak of year-on-year declines; imports surged 55.9 percent, much more than the 31.0 percent increase markets had expected.

The strong acceleration in imports may heighten the chances of overheating and put more pressure for the government to tighten policy, said Wang Hu, an economist at Guotai Junan Securities in Beijing.

Based on the trade data, he estimated industrial output in December grew by more than 25 percent from a year earlier and that GDP growth in the fourth quarter exceeded 11 percent.

Despite the leap in exports, the even bigger jump in imports meant China's trade surplus slipped to $18.4 billion in December from $19.1 billion in November and $39.0 billion in December 2008. Economists had expected it to tick up to $19.6 billion.

China was not the only Asian exporter to enjoy a dazzling December. South Korea and Taiwan reported export growth of 46.9 percent and 33.7 percent, respectively.

But China is far bigger, overtaking Germany as the world's biggest exporter of goods in 2009. Its booming investment and consumption are helping to rebalance the world economy even though Beijing has refused to let the yuan rise against the dollar since the global financial crisis began in mid-2008, said Rob Subbaraman, chief Asia economist at Nomura in Hong Kong.

Its imports of crude oil also hit a monthly record, while iron ore shipments were the second highest ever and copper imports beat expectations.

Booming Chinese demand will be a boon for commodity exporters like Australia, said Liu Nenghua, an economist with Bank of Communications in Shanghai.

It shows that China will continue to play an important role in driving world economic growth, he said.

YUAN PRESSURE

Liu said policy would not change in response to one month's figures, but the strong data would further reassure Chinese officials that global demand was not as weak as they had feared.

The government needs some time to see what happens. The really critical period is the first quarter of 2010: if the situation continues to be rosy, then the government may have to change a slew of policies, including its exchange rate policy, he said.

China flagged the possibility of tighter policy settings last week when the central bank nudged up a key money market rate for the first time since August. And on Sunday the cabinet voiced fresh concern over the bubbly property market and vowed not to let speculative inflows heat it up.

Other economists agreed that the yuan could start to rise around the end of March if exports remain strong.

But any appreciation would be moderate, in the order of 3 percent for the whole year, as China strove to protect export jobs, said Lin Songli at Guosen Securities in Beijing.

China is in need of exports to create jobs and to promote economic growth, there's no doubt about that, Lin said.

Brian Jackson, an economist with Royal Bank of Canada, said strong exports would increase pressure on Beijing to allow some appreciation, while also making it easier to justify such a move to domestic audiences, he said in a note to clients.

Huang Guohua, a statistics official with the General Administration of Customs, called the rebound in December exports an important turning point. He cited strength in export orders evident in last month's survey of purchasing managers as evidence that exports are set to grow further.

It is safe to say now that Chinese exporters have come right through the period of weakness, Huang told state television.

(Reporting by Zhou Xin, Tom Miles, Wang Lan and Alan Wheatley)

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