China economy shows more weakness as imports, exports fall

Chinese imports fell for a seventh straight month in May while exports also sank, data showed on Monday, as the world's second biggest economy shows protracted weakness in the face of government easing measures.

The disappointing figures also come as leaders try to transform the economy from one where growth is driven by consumer spending rather than government investment and exports.

Imports slumped 17.6 percent year on year to $131.26 billion, the General Administration of Customs said in a statement.

The decline was much sharper than the median forecast of a 10 percent fall in a Bloomberg News poll of economists and followed April's 16.2 percent drop.

"Import growth disappointed the market with a fall even larger than that in April, suggesting domestic demand remained weak," Nomura economist Zhao Yang said in a research note.

Exports dropped for the third consecutive month, falling 2.5 percent to $190.75 billion, Customs said, although that was better than the median estimate of a four percent fall in the Bloomberg survey.

The sharp decrease in imports meant the trade surplus expanded 65.6 percent year on year to $59.49 billion, according to the data.

In yuan terms imports fell 18.1 percent, exports decreased 2.8 percent and the trade surplus expanded 65.0 percent.

The figures provided further evidence that frailty in the Chinese economy, a key driver of world growth, has extended into the current quarter despite existing government stimulus measures.

Gross domestic product (GDP) grew by 7.4 percent in 2014, the lowest rate in nearly a quarter of a century, while the new year has shown few signs of a reversal in the slowing trend.

GDP expanded 7.0 percent in January-March, the worst quarterly result in six years and weaker than final three months of last year.

- More easing needed -

Beijing has set the target for the economy to grow by "around seven percent" this year, lower than its target for 2014, which was about 7.5 percent.

British bank HSBC's Purchasing Managers' Index (PMI), which tracks activity in factories and workshops and is seen as an important barometer of economic health, contracted for the third straight month in May and economists expect the shrinkage to extend into mid-year.

The government has warned that the manufacturing industry still faces multiple strains even as China's official PMI hit a six-month high in May.

Chinese leaders have said they are ready to accept slower but more sustainable growth, as they try to transform an investment-driven growth model to one in which consumers take centre stage.

Still, authorities have stepped up stimulus efforts since late last year in a bid to ensure the slowdown does not get out of hand.

The central People's Bank of China has cut interest rates three times since November and twice reduced the amount of cash banks must keep in reserve, along with other measures to inject liquidity into the market.

It has also lowered minimum downpayment levels on second houses and shortened the ownership period during which sellers are liable to a 20-percent capital gains tax on properties other than their main home in a bid to support the real estate market.

But analysts are calling for more monetary easing measures to arrest the economic slowdown.

"We believe China's monetary policy still needs to be accommodative to support domestic demand," Nomura's Zhao said.