China's Economy Continues to Grow Despite Cooling Efforts

China's surging economy has shown no signs of slowing despite recent cooling measures, with official data showing the trade surplus hitting a record high and inflation picked up in May.

China's trade surplus reached 13 billion dollars in May and 46.79 billion dollars for the first five months of the year, a customs administration statement said Monday.  The May performance was sharply higher than the surplus of $10.5 billion recorded in April and set the nation on course to surpass last year's record surplus of $102 billion.

Meanwhile, the government said the nation's consumer inflation index rose 1.4 percent in May compared with a year earlier, following a gain of 1.2 percent in April and 0.8 percent in March.  Analysts said the figures were a further sign that China's economy was continuing to steam ahead after growing at 10.3 percent in the first quarter, with recent measures aimed at preventing overheating yet to take effect.  "China's economy needs to take some time to slow down," Beijing-based BNP Paribas Peregrine economist Chen Xingdong said.  Among those policies were an interest rate rise on April 27 and a separate package of measures last month aimed at slowing investment in the overheated property sector.  "All the policies are in place," Chen said, but emphasized the problem lay with the local governments' willingness to curb growth by implementing the central authorities' orders.

Shanghai-based senior economist for Standard Chartered Bank, Stephen Green agreed there would be an inevitable lag in the effects of the policies, but cautioned that Monday's data appeared to indicate more needed to be done.  Green said the trade and inflation numbers backed up reports in the state-run press last week showing money supply had jumped in May, while bank loan growth had nearly doubled year-on-year.

Meanwhile, economists said the rise in the trade surplus would further add to tensions with the United States and increase pressure on Beijing to take more dramatic action in allowing the yuan to appreciate.  The United States has been the harshest critic of China's managed currency system, arguing the yuan is undervalued by as much as 40 percent which gives Chinese exporters an enormous trade advantage.  "The (May) trade surplus is quite high, much higher than we had expected," said Shen Minggao, a Beijing-based economist at Citigroup.  "If China's trade surplus continues to surge and sets new records all the time, the (external) pressure will rise. The government itself will also have problems to convince its trade partners that we are doing something."

DBS economist Chris Leung said Beijing's possible responses to the ever-growing trade imbalance with the United States could include a reduction of export subsidies or raising the value-added tax.  "But this is not what the US is aiming at. They want a stronger renminbi (yuan)."