Jan. 11 (Bloomberg) -- China's trade surplus narrowed in December and money-supply growth dwindled, signaling that the fastest economic expansion in 13 years may have peaked.

The trade surplus shrank to $22.7 billion from $26.2 billion in November, the Chinese customs bureau said in Beijing today. M2, the broadest measure of money supply, rose 16.7 percent to 40.3 trillion yuan ($5.55 trillion) from a year earlier, the smallest increase in seven months, the central bank said.

Exports grew at the slowest pace in two years, indicating that recent yuan gains, the cooling global expansion and cuts to export-tax incentives on polluting industries are beginning to bite. The central bank is still likely to take more measures to limit credit, ease inflation from an 11-year high and prevent the economy from overheating just as the U.S. expansion is faltering.

``China's economic expansion may have peaked last year,'' said Wang Tao, an economist at Bank of America Corp. in Beijing. ``China needs to tighten monetary policy further, given that new loan growth may rebound.''

China's economy, the world's fourth largest, expanded 11.5 percent in 2007, according to government forecasts. Wang estimates it will grow between 8 percent and 10 percent over the next three to five years.

Simultaneous Slowdown

U.S. growth, by contrast, will cool to an annual pace of 1.1 percent in the second quarter, according to a Bloomberg News survey. A simultaneous slowdown in China may hurt the global economy as policy makers wrestle with the fallout from the collapse of the U.S. subprime mortgage market.

The yuan rose to the highest since a dollar peg was scrapped in 2005, trading at 7.2620 per dollar at the close in Shanghai. The currency, which advanced for a fifth week, has climbed 14 percent since the link ended.

The Baltic Dry Index, a measure of shipping costs for commodities, fell the most since 1989 on concern that demand from China will ease.

The index, which tracks transport costs on international trade routes, dropped 4.6 percent to 7,949 points today, according to the London-based Baltic Exchange. Silver, gold and other metal prices also declined after today's reports before rebounding.

Goldman Estimate

With Goldman Sachs Group Inc. and Morgan Stanley saying that the U.S. is close to recession, the global economy is already slowing. The World Bank said Jan. 9 that growth will ease to 3.3 percent this year from 3.6 percent in 2007. The pace of China's expansion will slow to 10.8 percent from 11.3 percent, it says.

``Chinese economic developments are crucial to what's going on in the global economy at present,'' said Diana Choyleva, an economist at Lombard Street Research Ltd in London. ``China is currently overheating on a massive scale and that presents a big problem for the Chinese authorities but also makes life unpleasant for developed countries.''

For 2007, China's trade gap surged 48 percent to a record $262.2 billion, giving U.S. and European officials ammunition to keep calling for faster appreciation of the yuan.

China's trade surplus has jumped about 11 times since 2000 as companies including Intel Corp. and Nike Inc. set up factories to take advantage of cheap labor.

Pumping Cash

To stop the currency from rising faster the central bank sells yuan to the banks and buys their foreign cash, flooding the economy with funds and complicating monetary policy.

``The critical issue is still the exchange rate because with the currency as undervalued it is, it prevents the government from enacting the needed financial market and monetary policy measures,'' said Mark Williams, an economist at Capital Economics in London.

Chinese authorities have allowed some faster appreciation. The yuan rose to the highest since a dollar peg was scrapped in 2005, trading at 7.2620 per dollar at the close in Shanghai today. The currency, which advanced for a fifth week, has climbed 14 percent since the link ended.

As well as six interest rate increases last year, the central bank has raised the amount of money banks must set aside as reserves to a 20-year high and unofficially directed banks to limit lending, known as window guidance.

Bank Lending

Outstanding local-currency loans jumped 16.1 percent to 26.2 trillion yuan in December from a year earlier, slowing from 17 percent in November.

``The central bank's tightened monetary policies, especially the frequent window guidance, have started to bite,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Banks have got the message that the government will be firm-handed this year.''

Exports rose 21.7 percent in December to $114.4 billion, compared with last month's 22.8 percent and the slowest since December 2005 excluding distortions from Lunar New Year holidays in January and February.

The yuan advanced 7 percent against the dollar in 2007, twice as fast as in 2006, partly because the central bank boosted interest rates to a nine-year high.

The yuan's gains and slowing global growth are already beginning to affect corporate performance.

Lenovo Shares Slump

Television sales at TCL Multimedia Technology Holdings Ltd., a unit of China's biggest consumer electronics maker, slumped 33 percent in November from a year earlier.

Shares of Chinese companies fell in U.S. trading. China Telecom Corp. declined 4.8 percent to $86.45 as of 10:57 a.m. in New York. China Life Insurance Co. slipped 2.4 percent and China Petroleum and Chemical Corp. dropped 4.1 percent. Shares of Lenovo Group Ltd., which bought IBM Corp.'s personal computer business in 2005, slumped 23 percent in Hong Kong this week.

One of the goals of policy makers is to cool the economy without causing growth to stall while the U.S. economic slowdown tempers demand for Chinese-made goods.

``If exports slow in China, you'll see a lot of overcapacity, you'll see margins collapse, you'll see deflation and you'll see a lot of non-performing loans,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.

A 1 percentage point slowdown in the U.S. would trim China's export growth by 4 percentage points and reduce gross domestic product by 0.5 percentage point, according to Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.

Slowing Exports

Morgan Stanley forecast last month that growth in China's shipments abroad may slow to 16 percent in 2008. Imports will increase 18 percent, the investment bank predicted.

``A U.S. slowdown will hit China's other export markets too -- and that we think will likely have a knock-on impact upon China's own investment growth,'' said Stephen Green, an economist at Standard Chartered Plc in Hong Kong.

China's foreign-exchange reserves, the world's biggest, rose 43 percent to a record $1.53 trillion at the end of 2007 from a year earlier, today's central bank statistics showed.

To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net

Last Updated: January 11, 2008 11:45 EST