Positive signs in China despite trade fall

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Chinese exports and imports continued to fall in May but investment surged to record highs in the world’s third largest economy as the government pumped money into new infrastructure projects to boost flagging growth.

Exports fell 26.4 per cent from a year earlier, a steeper drop than the 22.6 per cent fall in April and the seventh consecutive month of decline.

Imports fell 25.2 per cent, after a 23 per cent drop the previous month, but economists said imports and exports had stabilised and were basically flat if measured on a monthly, seasonally-adjusted basis.

Chinese import volumes of many commodities and natural resources surged in May, indicating a rebound in infrastructure building. That supported figures on Thursday showing fixed-asset investment was 32.9 per cent higher in the first five months of the year, compared with the same period in 2008, an implied rise of 38.7 per cent in May alone from a year earlier.

That was the third highest rise on record but because prices are falling in China, last month’s investment figure was the highest since the government began publishing figures in 1997, according to Goldman Sachs. “While government-led infrastructure investments continue to lead the charge, private investments are showing positive signs as well,” said Yu Song, Goldman economist.

The twin engines of the economy over the past decade have been the booming property market and surging exports. Thursday’s data appeared to indicate at least one of those engines could be starting to recover.

Growth in property-related fixed-asset investment accelerated to 6.8 per cent from a year earlier in the first five months, compared with 4.9 per cent year-on-year growth between January and April. However, the growth rate was still 25.1 percentage points lower than year-on-year growth in the first five months of 2008.

Sales volumes of commercial and residential real estate rose 45.3 per cent in the first five months from a year earlier, but the huge rise in turnover did little to boost prices, leading some economists to question the accuracy of the statistics.

In Beijing real estate sales volumes more than doubled in the first five months from a year earlier but the average price was actually down 1.1 per cent in May from a year earlier.

Alaistair Chan, economist at Moody’s, said: “The surge in bank lending has resulted in a large increase in real estate transactions, possibly of a speculative nature, which may explain the rise in volumes. Fixed asset investment in China continues to increase on the back of state-directed projects . . . This will help keep the economy growing, but there are increasing concerns about the amount of lending that has been required to fund the projects.”

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