June 8, 2014 3:40 pm JST

China exports strengthen with 7% climb

BEIJING (Dow Jones) -- China posted solid gains in exports in May, pointing to improving global demand for the nation's goods, but a surprisingly weak import tally in the same month raised concerns over struggling domestic demand. 

     Analysts said the export sector this year could turn out to be one of the bright spots for the world's second-largest economy, which has shown sluggish growth in 2014. 

     Exports climbed 7% year over year in May, according to official data released on Sunday, in line with market expectations of a 7.2% rise and making a solid improvement over the 0.9% advance in April and the 2.3% decline year on year in the January-April period. 

     "Exports are turning the corner," said Larry Hu, China economist at Macquarie Group. "I think they are on track for a steady recovery this year." 

     The improvement in exports also probably reflected the end of distortions in year-ago data. Last year, many exporters used over-invoicing of their exports to bring currency onshore, skirting foreign exchange controls, to take advantage of a then-rising currency. That practice was reduced--if not eliminated--after authorities warned in May last year they would impose tough penalties on firms found to be falsifying reported data. 

     The 1.6% drop in imports in May was more worrisome as analysts polled by The Wall Street Journal had been looking for a 6% rise in May. 

     "Continued subdued import growth seems to reflect slow growth of demand in China's economy," said Louis Kuijs of Royal Bank of Scotland in a note to clients. 

     China's economic growth slowed to 7.4% year over year in the first quarter of 2014 after a 7.7% year over year rise in the final quarter of last year. 

     Beijing has actively tried to boost domestic demand with a series of measures--dubbed a "mini-stimulus" plan--including faster spending on railways and tax breaks for smaller businesses. 

     More recently Beijing told local governments to speed up spending on approved projects--where funds have already been allocated--or risk losing those funds. It has also told commercial banks to make funds available for mortgage loans to help the ailing property sector. Property prices fell month over month in May for the first time in nearly two years, according to an unofficial data provider. 

     Analysts said those measures may be working, as shown in the improved official Purchasing Managers Index, a gauge of factory activity, for May. They added that imports could start to pick up in the coming months. 

     Meanwhile, the improved exports and less-than-robust imports led to a substantially wider trade surplus of $35.9 billion for the month, up from a $18.45 billion surplus in April, and topping economists' forecast of a $23.4 billion surplus.