Chinese trade numbers up, but economy sags

By Sam Mamudi and Chris Oliver, MarketWatch

Chinese exports rise 15.3% in May compared to the same month in 2011.

NEW YORK (MarketWatch) ? Chinese economic data for May released over the weekend suggested weaker domestic conditions, but surprising strength in exports and imports.

Exports rose 15.3% compared to a year earlier, government data showed, beating 4.9% growth in April and higher than the 6.9% rise forecast by a Dow Jones Newswires poll of economists. Imports in May were up 12.7%, well ahead of predictions of a 3% increase and April?s 0.3% rise.

Domestic data released Saturday, however, showed a broadening deterioration in conditions.

China?s industrial production grew 9.6% in May from a year earlier, versus 9.3% growth in April, the Statistics Bureau said.

The result missed a 9.9% rise expected in separate surveys by Dow Jones Newswires and Reuters.

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Fixed-asset investment in urban areas was up 20.1% in the January-to-May period, compared to a 20.2% rise in the January-to-April period.

The result outpaced expectations for a 20% rise, according to Dow Jones Newswires survey.

On the inflation front, consumer and wholesale price gains eased more than expected.

The May consumer price index rose 3%, cooling from a rise of 3.4% in April, while the producer price index fell 1.4%, signaling a deepening of the deflation seen in April?s 0.7% contraction.

The data compared to forecasts for a 3.2% increase for the CPI and a 1.1% contraction in wholesale prices.

?These data confirm a softening inflation in China, which will provide more room for further policy stimulus measures and utility price hikes,? said Bank of America Merrill Lynch analysts in an email to clients Saturday. ?Moreover, the widening gap between year-on-year CPI and [wholesale] inflation suggests that profit margin could be improved for downstream manufacturing sectors.?

The analysts predicted CPI could fall to 2.5% in the coming months, but suggested that, absent a global financial crisis, there could be a rebound after August ?on lower bases and a recovery of growth.?

The People's Bank of China is the nation?s central bank.

The weekend?s data came after the People?s Bank of China on Thursday surprised observers by cutting interest rates, marking its first such cut since the 2008 global crisis.

The analyst community had expected the PBOC to take a milder approach before any cuts, perhaps lowering banks? reserve requirement as a first step, so Thursday?s action raised concerns over the state of the economy.

?The interest rate cut signaled the end to government caution, and the start of a more active macro policy,? said analysts at IHS Global Insight in a Saturday research note. ?The ?mini-stimulus? is out, and should lead to better economic data in the second half. But for now, weakness abounds.?

The IHS analysts labeled Saturday?s data as ?ugly, but not hard-landing ugly? and even saw some positives in the numbers.

?Output is back off the lows seen last month, and funding for real estate is slightly better,? they wrote. ?In a possible turning sign, coastal China appears to be performing better in terms of real-estate investment, even as central and western China continue to feel the ripple effects from the central government?s cumulative tightening moves.?

Meanwhile, retail sales rose 13.8%, compared to a 14.1% gain in April, and weaker than analyst expectations for a 14.2% rise.

Sam Mamudi is a reporter for MarketWatch, based in New York Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

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