Asia Economy

China reveals near-record trade surplus for May

Worker at small parts manufacturing factory in China.
Mick Ryan | Cultura | Getty Images

China's yuan-denominated exports fell by a smaller-than-expected 2.5 percent year-on-year in May, while imports tumbled 17.9 percent, producing a near-record monthly trade surplus of 366.8 billion yuan ($59.49 billion).

The surplus came close to the peak $60.5 billion surplus recorded in February, when numbers were distorted by the Chinese New Year.

Economists polled by Reuters had expected exports in May to fall 5.0 percent from a year earlier and predicted imports would drop 10.7 percent.

Although export numbers came in better than forecast, the slide in imports sparked worries about domestic demand.

"The deepening of the import contraction, despite stronger commodity prices in May, suggests that domestic demand is particularly weak, which contributed mainly to the strong trade surplus," said Zhao Yang, economist at Nomura.

With imports weaker than expected, Zhu Haibin, China economist at JPMorgan, says the Chinese government's 6 percent trade growth target for the year may be in jeopardy.

"Even with export growth, it's quite challenging to meet the 6 percent target," Zhu said.

China pulse check

Trade figures are the first in a flurry of data from China this week, with inflation figures due on Tuesday and retail sales, industrial production and fixed asset investment on Thursday.

"A very big week for Chinese data which will provide further guidance on the pace of economic activity," National Australia Bank (NAB) wrote in a note.

China's exports and imports tumbled in April. Exports fell 6.4 percent from the year-ago period, coming in worse than the 2.4 percent rise forecast in a Reuters poll and following a 15 percent plunge in March. Imports dived 16.2 percent on year, also missing the 12 percent expected drop and after falling 12.7 percent in March.

Meanwhile, Beijing's official Purchasing Managers' Index (PMI), which surveys large companies, rose to a six-month peak of 50.2 in May, but a similar survey of small and medium - sized enterprises by HSBC showed activity contracting for a third straight month. And Reuters expects 2015 gross domestic product to slow to 7 percent, from 7.4 percent in 2014.

Other data due this week are likely to reinforce room for more easing, analysts said.

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"The full raft of China activity and money/credit data this week represents an important benchmark to judge the efficacy of recent policy easing. We expect a better tone to the data, but only marginally so," Societe Generale said in a note.

Last month, the PBOC lowered interest rates by 25 basis points to 5.1 percent - its third cut in a six month period.

Nomura expects further monetary stimulus to offset headwinds togrowth, including two more 25 basis point benchmark rate cuts andtwo more 50 basis point reserve requirement ratio cuts through therest of this year.