China's imports in May grew at their fastest rate since 2004, driven by surging commodity prices, but its exports were also unexpectedly strong as buoyant emerging markets compensated for sluggish US demand.
Higher raw material costs also pushed up China's factory-gate inflation to 8.2 per cent in May, the highest in nearly four years, suggesting price pressures in the pipeline that could limit any moderation in consumer inflation in coming months.
China's trade surplus in May hit $20.2 billion, down 10 per cent from a year earlier, after imports grew more strongly then exports, as they have done every month since October apart from one. The surplus was close to expectations.
The evidence that the surplus is cresting will offer some relief to Chinese policy makers who will hold high-level talks with their counterparts in the United States next week.
But the surplus is not shrinking quickly enough to relieve the headache facing the central bank, for cash flooding into the country from exports is one of the root causes of inflation.
May's imports soared 40 per cent, beating forecasts. But the 28.1 per cent rise in exports also far surpassed the market's 20 per cent projection.
China's foreign exchange reserves, already the world's largest, grew a record $74.5 billion in April, adding to the vast pool of liquidity that threatens to push prices still higher.
The central bank signalled its concern on Saturday with an aggressive 1 percentage point increase in banks' reserve requirements to sop up some of the surplus cash in the economy.
That rise, which ties up deposits that banks could otherwise lend out, was interpreted as a harsh tightening step by investors and triggered a steep fall in China's stock markets.
The country's benchmark index briefly dipped below the psychologically important level of 3,000 today but pared losses to close 1.6 per cent lower at 3,024. It's down more than 40 per cent so far this year.
The 8.2 per cent increase in producer prices was a touch below market expectations but was up from 8.1 per cent in April as food, energy and raw material costs all surged at a double-digit pace.
It was the tenth straight month of accelerating producer prices and was the highest reading since October 2004.