China posts the largest trade deficit since 2004

In February the trade deficit posted by China was the largest in seven years as the Lunar New Year holiday dealt a sharper blow to export activity than expected. The reading was China’s first trade deficit since last March and the biggest since February 2004.

"Both imports and exports are lower than expected, and seasonal factors alone can't explain the sharp monthly drop," said Xu Biao, economist with China Merchants Bank in Shenzhen.

"It is definitely not a good sign. The size of imports is already read as a measure of domestic demand. But now imports have dropped significantly, and it points to a serious weakening in domestic economic activity," he said.

While it may look like a sign of Beijing’s efforts to narrow its trade surplus so as to reduce China’s excessive reliance on exports, economists cautioned against reading too much into one month's trade data, especially in the first quarter. Chinese exports typically slump at the start of the year, with the country's factories shut or running at half speed for weeks because of the Lunar New Year.

China ran a $6.5 billion trade surplus in January and averaged $15 billion a month last year.