China will strive to reduce its " excessively large" trade surplus to ensure the sustained development of both domestic economy and foreign trade this year, said Premier Wen Jiabao at the just-opened annual full session of the 10th National People's Congress (NPC) Monday.

The premier made the remarks in the government work report to 2, 890 deputies to the NPC, the country's top legislature, at the Great Hall of the People in Beijing.

China recorded a sizzling economic growth of 10.7 percent in 2006, largely powered by strong exports, which rose 33 percent to 86.62 billion U.S. dollars.

Despite a slight 1.2 percentage points down in export growth and 2.4 percentage points up in import growth, China's trade surplus last year expanded to a record 177.5 billion dollars, up 74 percent from the previous record of 101.9 billion dollars set in 2005.

The surplus kept surging 67.3 percent in January from a year ago to 15.88 billion U.S. dollars, a dangerous level to ignite inflation and aggravating already tense trading relations between the world's fourth largest economy and its major trade partners, which press China for further currency appreciation.

To reduce the hefty trade imbalance, the premier said the government will limit export of products whose manufacture is highly energy consuming or highly polluting while supporting export of high value-added products and products with Chinese trademarks, upgrading the processing trade and expanding the export of service and agricultural products.

For the part of imports, Wen stressed that imports of energy, raw materials, advanced technologies and equipment, and key spare parts and accessories will be bolstered.

The premier promised China will keep improving the mechanism for setting the Yuan exchange rate, easing the imbalance in international payment and optimizing foreign investment environment.

Wen confirmed the government's efforts to adjust the trade mix by improving policies concerning export tax rebates, tariffs and processing trade and by controlling the exports of highly-energy- consuming products.

He also revalued the significance of promoting the development of foreign trade.

"Promoting economic development and increasing employment through the growth of foreign trade is a principle China must follow for a long time to come," Wen said.

However, China has acknowledged that a large trade surplus is not necessarily good for its own sustained economic growth.

"The Chinese government does not pursue an excessive trade surplus and the related departments have also showed deep concern to this issue," Commerce Minister Bo Xilai told Xinhua on Monday.

Bo, also an NPC deputy, said in February that his department has put "cutting the huge trade surplus" as "the priority task for 2007."

The minister warned the trade surplus would widen to 300 billion dollars and turn "an economic problem into a political one " if measures were not taken.

"The yawning surplus with the United States and the European Union has strained China's foreign trade environment, triggering more frequent trade friction," he said.

However, Bo called for "rational and objective analysis" on the factors which has led to and constitutes the trade surplus.

"We need to consider more than one factor when counting trade surplus. However, some countries have limited understanding or has exaggerated one side or another of the constitution of China's trade surplus, as a result, they can't get a real trade picture in China," he said.

Chinese experts have long blamed the structural imbalance of domestic investment as a major factor for surging surplus.

"Take the low-value-added goods processing sector for example. It accounts for about half of the surplus, but the profit Chinese enterprises earn is quite limited," said Zhang Yansheng, director of the International Economic Research Institute under the National Development and Reform Commission.

The World Bank urged China in its quarterly report on the country on Feb. 14 to increasingly rely on new sources of growth in the medium term, with a re-allocation of labor from agriculture into services and labor-intensive urban growth seen as key.

This could boost urban employment, wages and household incomes and reduce rural-urban disparities, while mitigating external imbalances, the bank said.

"Re-balancing the pattern of growth, featuring a move to more labor intensive urban growth, will need to be a key part of an effort to boost the role of consumption in the economy and to reduce the trade surplus," it said.

Chinese experts, on the other hand, cautioned the government against over reliance on accelerating imports to erode the trade imbalance.

"To promote imports does not necessarily mean the more imports, the better, or exports are bad. After all, our achievement in export was not easily won," said Zhang Yansheng.

"The point is that we should improve the quality of both exports and imports, in other words, to put what our needs at the top when doing business with foreign countries," said Zhang.

Experts also warned of the negative impact following the surplus reduction on national economic growth, especially unemployment, as the country's economy is largely fueled by exports.

"To minimize the unfavorable influence, the central government should take measures to boost domestic consumption," Jin Lie, a member of the NPC Standing Committee, told Xinhua after the NPC opening session.

Source: Xinhua