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Positive Signs in China Despite Trade Fall

Chinese exports and imports continued to fall in May but investment surged to record highs in the world's third largest economy as the government pumped money into new infrastructure projects to boost flagging growth.

Exports fell 26.4 percent from a year earlier, a steeper drop than the 22.6 percent fall in April and the seventh month of year on year decline.

Imports fell 25.2 percent, after a 23 percent drop the previous month, but economists said imports and exports had stabilised and were basically flat if measured on a monthly, seasonally-adjusted basis.

Chinese import volumes of many commodities and natural resources surged in May, indicating a rebound in infrastructure building. That supported figures yesterday showing fixed-asset investment was 32.9 percent higher in the first five months of the year, compared with the same period in 2008, an implied rise of 38.7 percent in May alone from a year earlier.

That was the third highest rise on record but because prices are falling in China, last month's investment figure wasthe highest since the government began publishing figures in 1997, according to Goldman Sachs. "While government-led infrastructure investments continue to lead the charge, private investments are showing positive signs as well," said Yu Song, Goldman economist.

The twin engines of the economy over the past decade have been the booming property market and surging exports. Yesterday's data appeared to indicate at least one of those engines could be starting to recover.

Growth in property- related fixed-asset investment accelerated to 6.8 percent from a year earlier in the first five months, compared with 4.9 percent year-on-year growth between January and April. However, the growth rate was still 25.1 percentage points lower than year-on-year growth in the first five months of 2008.

Sales volumes of commercial and residential real estate rose 45.3 percent in the first five months from a year earlier, but the huge rise in turnover did little to boost prices, leading some economists to question the accuracy of the statistics.

In Beijing property sales volumes more than doubled in the first five months from a year earlier but the average price was actually down 1.1 percent in May from a year earlier.