Inflation remains key risk to economy

Expansion will ease to 9.6 percent this year from 10.3 percent in 2010 as the government's fiscal stimulus winds down and monetary policy is tightened, the Manila-based lender forecast.

"The better-than-expected exports and imports should remove concerns there will be a rapid economic downturn," Dong Xian'an, a former chief economist at Industrial Securities and now at the Beijing-based Peking First Advisory, said in a note on Sunday.

Export growth to China's biggest trading partners - the European Union and the United States - accelerated last month as their economies recovered from the global financial crisis, according to data from the customs bureau. Shipments to Japan surged 37.4 percent from a year earlier to a record $13.1 billion.

US policymakers have pressed China to allow quicker gains in the yuan to help narrow trade imbalances.

The PBOC set the yuan's daily reference rate against the dollar at 6.5401 on Monday, a record high for the seventh straight trading day. The yuan has gained more than 4 percent against the dollar over the past 12 months and about 26 percent since July, 2005, when China reformed its yuan exchange rate policy.

"China is still facing strong pressure from imported inflation," said Liu Li-Gang, an economist at Australia & New Zealand Banking Group in Hong Kong who formerly worked for the World Bank. "While the authorities can use fiscal subsidies to offset this, the exchange rate tool is more effective to contain imported inflation."

Last week, the Organization for Economic Cooperation and Development said that economic recovery among the world's most advanced economies is gathering strength. The Paris-based body forecast the Group of Seven economies, excluding Japan, probably expanded an annualized 3.2 percent in the first quarter and 2.9 percent in the second.