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China trade figures ease fears of 'hard landing'

China’s consumers are showing tentative signs of picking up the slack from its exporters, as the world’s second largest economy reported a smaller-than-expected trade surplus of $13 billion in May.

 
China trade figures ease fears of 'hard landing'

China’s consumers are showing tentative signs of picking up the slack from its exporters, as the world’s second largest economy reported a smaller-than-expected trade surplus of $13 billion in May.

The figures, which analysts say should ease concerns of a ‘hard landing’ for China in the coming months, show that imports grew while export growth declined.

Exports grew by 19.4% year on year, sharply down from the nearly 30% growth reported the previous month. Imports meanwhile grew by 28.4%, up from just shy of 22% in April. The overall surplus figure compared with $11.4 billion in April and was way below expectations.

It is hoped that the world’s second largest economy will be able to switch from a dependence on cheap export led growth towards a model based on internal consumption.

Li Cui at RBS said: ‘Strong imports are consistent with our thesis that the China's domestic demand has remained robust. This should help to ease the concerns for a significant slowdown in growth.’

Yao Wei of Societe Generale commented: ‘Resilient import growth suggested that the momentum of domestic demand remained largely intact’.

‘It was another hint that China's demands for capital goods and consumer goods were not derailed either,’ said Wei.

That said, economists cautioned that the figures were preliminary and it remains uncertain whether a significant trend away from exports and towards consumer growth will take hold. Economists at IHS Global Insight said: 'Although rash to draw strong conclusions from one month’s trade data, it seems little progress has yet been seen in shifting China away from its pre-crisis growth pattern.'

The Chinese authorities have been taking measures to put a halt to growing inflation and cool the economy. These have included increasing interest rates and raising the ratios of reserves that its banks must hold.

Looking ahead, Hongbin Qu, chief China economist at HSBC, said import growth was likely to moderate due to 'slowing domestic demand, the likely downshift in international manufacturing cycle and the softening in international commodities prices'. On the other hand, 'any sharp slowdown in exports seen over end 2008 to 2009 will not be repeated this year, since the global economy is still on track of recovery'.

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