BANK OF AMERICA CORPORATION 
By Imports sank 15.3 percent in January versus January 2011 -- the lowest since August 2009 -- while exports fell 0.5 percent over the same period, the worst showing since November 2009, customs data showed on Friday.
"A fall of over 15 percent in January cannot be entirely explained by the Lunar calendar, and adds weight to the view that economic output is slower than headline indicators might suggest," said Ren Xianfeng, an economist at IHS Global in Beijing.
The figures may sound an alarm-bell on the resilience of domestic demand that has shielded the world's second-largest economy from slackening exports.
But Lunar New Year distortions will make policymakers wary of any hasty reaction, so analysts expect them to assess January and February data combined before deciding whether the current policy of gentle easing needs to be intensified.
The drop in exports and imports left China with a trade surplus of $27.3 billion in January, its biggest in six months and confounding expectations of a further narrowing.
Exports to the European Union, China's top export market, fell 3.2 percent in January from a year earlier after rising 7.2 percent in December, the data shows.
Exports to the United States grew 5.5 percent in January from a year earlier, slowing from December's 11.9 percent rise.
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GRAPHIC: China trade data http://link.reuters.com/ked55s
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Analysts cautioned against reading too much into a single month of data skewed heavily by the seasonal distortion of the week-long Lunar New Year holiday, which fell in January this year and in February last year. Factories typically shut or run at half speed during this period.
That left economists reading between the lines with the wide range of their forecasts a clear sign of uncertainty.
"The drop in both January exports and imports is not drastic enough to trigger any aggressive move in monetary policy," Sun Junwei, economist at HSBC Global Research in Beijing, said.
"The decision makers may probably look at more indicators for February and other data such as foreign exchange purchase positions to gauge the policy stance."
Analysts at Bank of America/Merrill Lynch said in a client note that making swift adjustments for actual days worked showed the data in a different light.
Under such an adjustment, exports may have grown 28.7 percent from a year earlier and imports may have risen 10 percent given that there were just 17 working days in January compared to 22 working days a year ago.
LIMITED ROOM FOR EASING
China's economic expansion struck a 2- year low of 8.9 percent in the last three months of 2011, extending a steady slowdown that had prompted the government in the autumn to switch policy settings to support growth. It has gently eased monetary and fiscal conditions since.
The central bank cut the bank reserve ratio in late November for the first time in three years and is expected to reduce it further to help offset an expected decline in capital inflows. A fall in these inflows hinder money supply growth and so economic growth, analysts say.
The market had anticipated a cut in banks' reserve requirement ratio (RRR) ahead of the Lunar New Year. But the People's Bank of China, the central bank, has opted instead to sue open market operations to inject short-term liquidity into the financial system.
Many analysts reckon a cut in the RRR may now be set back until March after data on Thursday showed annual inflation spiked to a consensus-busting 4.5 percent in January.
"We do not believe there will be imminent direct policy implications from this data because policy makers understand January data are all highly distorted across the board.
"Taken at face value today's trade data should push policy makers to loosen policy further. This may well happen if February year-on-year exports data is still as low but we believe there will be a large rebound to double-digit levels," Yu Song, China economist at Goldman Sachs, said in a note to clients.
"At the same time, the pressures to loosen from trade data are offset by yesterday's CPI data, which surprised on the upside, which taken at face value would point to a need to tighten policy."
Few analysts believe the central bank will cut interest rates this year, with annual inflation staying stubbornly higher than the one-year deposit rate of 3.5 percent.
STABLE YUAN
The slope of China's economic slowdown has been shallow enough for the consensus to emerge that a hard economic landing will be avoided, even though many private-sector economists forecast that 2012 will see the slowest pace of expansion in a decade.
The first quarter of 2012 is widely expected to mark the bottom of China's economic downswing. Signs from the most recent purchasing managers index survey showed a slight expansion of the factory sector in January.
China's minister of commerce, Chen Deming, had flagged that January's numbers would not look pretty in a statement released on Thursday, adding that a stable yuan currency was needed to help Chinese exporters.
In a separate statement, China's State Administration of Foreign Exchange (SAFE) -- guardian of the country's $3.18 trillion of official reserves that have become the world's biggest largely on the strength of Chinese exports -- said the country's current account surplus would fall sharply in 2012.
SAFE said though that the surplus, which narrowed in 2011 to 2.7 percent of GDP from 5.1 percent in 2010, would remain despite the risk of external shocks to demand and capital flows.
(Reporting by China Economics Team; Editing by Neil Fullick)
By Aileen Wang and Kevin Yao
