China trade surge boosts economy

China's exports and imports surged in January as the first hard data of the year signalled not only a solid recovery in domestic and overseas demand, but also the risk that inflationary pressures are building.

Exports grew 25 per cent from a year earlier versus a forecast of 17 per cent in a Reuters poll. Imports surged 28.8 per cent to comfortably beat a consensus call of 23.3 per cent and the resulting $29.2 billion trade surplus topped a market expectation of $22 billion.

New lending by China's banks in January beat expectations at 1.07 trillion yuan (€128.2 billion) and more than doubled from December. Total social financing - a broad measure of liquidity in the economy - leapt to 2.54 trillion yuan, well ahead of December's 1.63 trillion yuan.

Economists were cautious about reading too much into one month's data undeniably distorted by the timing of Lunar New Year holidays, which fall in February this year but were in January in 2012. Still, the consensus view suggested an economic recovery that started in late 2012 was strengthening.

"Overall this says there is no need to worry about the strength of China's recovery," Sun Junwei, China economist at HSBC in Beijing, said.

"These were very strong numbers, particularly total social financing. This means to me that beyond the rebound in bank lending there is strong demand for credit in the economy," Sun said, predicting upside surprises to data ahead.

After seven straight quarters of a slow down, growth picked up in the fourth quarter. Still, 2012 marked the slowest year of growth for China since 1999.

Investors bought the argument that an economic recovery was intact. Stock prices in Asia rose, despite pressure to take profits around the region ahead of next week's Lunar New Year lull, while oil and copper futures also gained ground.

The stronger-than-expected exports also pointed to signs of a recovery beyond China's borders in the giant economies of the United States and the European Union.

January's consumer inflation fell to 2 per cent from December's seven-month high of 2.5 per cent, suggesting price pressures are subdued for now.

Economists expect inflation to gather steam through the first quarter, though likely staying below 3.5 per cent in 2013, a level they think the government will soon announce as its target.

The overall strength of the data underlines a more cautious line being taken by the central bank, which indicated a shift in its policy back towards inflation risks from growth in a fourth-quarter monetary policy report on Wednesday.

Reuters