March 11 (Bloomberg) -- China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic consumption to prop up the world’s third-biggest economy.

The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent.

The government has halted the yuan’s gains against the dollar and plans to cut export taxes to zero as demand dries up because of the global slump. Premier Wen Jiabao is relying on a 4 trillion yuan ($585 billion) stimulus package to propel economic expansion after the weakest growth in seven years threw millions out of work.

“There’s no hope for export demand to recover any time soon,” said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. “How fast imports recover depends on how soon the government’s stimulus package kicks in and creates real demand in major industries.”

The timing of a Lunar New Year holiday masked what would otherwise have been a steeper decline in trade, said Mark Williams, a London-based economist at Capital Economics Ltd. The holiday meant that there were more working days in February this year than in 2008.

The median estimates in a Bloomberg News survey of 16 economists were for a $28.3 billion trade surplus, a 1 percent decline in exports and a 22.5 percent drop in imports.

Smaller Surpluses

Exports fell 17.5 percent in January and imports declined a record 43.1 percent. Bloomberg’s data goes back to 1995.

After hitting a record $40 billion in November, China’s trade surpluses may stay below $20 billion for the next six months because of weaker demand, said Xing Ziqiang, an economist at China International Capital Corp. in Beijing.

China has responded to the collapse in world trade by halting the yuan’s three-year advance against the dollar in July last year and reducing export taxes on products from toys to textiles. A run of big export declines could make a weaker yuan more likely, Williams said.

The government plans to gradually cut all export taxes to zero to support overseas shipments, Commerce Minister Chen Deming said this week. More than 30 percent of the goods produced in Chinese factories are sold overseas, he said, in an interview published in Study Times, a Communist Party newspaper.

Victims of Slowdown

Plunging exports and imports forced 20,000 small- and medium-sized companies in China’s Guangdong province to close since October, shedding 2 million jobs, the Nanfang Daily newspaper reported last month.

Those feeling the squeeze include suppliers to companies such as Mattel Inc., the world’s biggest toymaker, and U.S. department-store chain J.C. Penney Co. U.S. consumer confidence has tumbled as a recession deepens in the world’s biggest economy.

Government efforts to revive China’s economy by spurring consumption include subsidizing purchases of home appliances by farmers. In his annual speech to lawmakers last week, Premier Wen pledged to boost incomes and “improve the social safety net.”

Signs that China’s economy may be recovering as the government rolls out the stimulus spending include surging loan growth and a gain in power demand in February, reported yesterday by Li Yizhong, the minister for industry and information technology.

The economy grew 6.8 percent in the fourth quarter.

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

Last Updated: March 10, 2009 23:39 EDT