China Imports, Exports Speed Up

China reported stronger-than-anticipated exports and imports for May despite falling commodity prices, suggesting the economy is holding up better than expected despite rising lending rates and a cooling property market.

Concerns over China landed squarely back on global investors’ radar after Moody’s Investors Service downgraded its credit rating last month, saying it expects the country’s financial strength will erode in coming years as growth slows and debt continues to rise, Reuters reported.

China’s imports have been strong in recent months, driven largely by iron ore and other commodities used to feed a year-long construction boom, while exports have rebounded from several years of contraction thanks to improving global demand.

While the strength of the May import data surprised economists, and suggested domestic demand remains solid, analysts still expect the world’s second-largest economy to lose momentum gradually over the course of the year due to policy tightening.

Government measures to cool heated home prices are expected to dampen property investment eventually and a crackdown on riskier types of lending is pushing up financing costs.

“The current strength of imports is unlikely to be sustained if, as we expect, slower credit growth feeds through into weaker economic activity in the coming quarters,” Capital Economics’ Julian Evans-Pritchard wrote in a note.

“Export growth is also likely to edge down but should fare better than imports given the relatively upbeat outlook for China’s main trading partners.” Growth in both exports and imports accelerated from April, defying expectations of a slowdown.

Exports rose 8.7% from a year earlier, while imports expanded 14.8%, official data showed on Thursday. That left the country with a trade surplus of $40.81 billion for the month, the General Administration of Customs said.

Analysts polled by Reuters had expected May shipments from the world’s largest exporter to have risen 7%, easing from 8% growth in April.

Imports had been expected to have climbed 8.5%, pulling back from 11.9% in April. That was expected to produce a trade surplus of $46.32 billion, widening from April’s $38.05 billion.

Frenzied Housing Market

Sources at two steel mills told Reuters they expect output to remain high as profit margins and demand are still strong, even though construction activity in China tends to ease in summer due to intense heat and rain in parts of the county.

Much of the building boom has been fuelled by government spending on road and rail projects and a frenzied housing market, even as authorities try to contain mounting risks from years of debt-fuelled stimulus.

Analysts had expected import growth to cool largely due to a slump in prices of iron ore and steel in recent weeks on worries about growing inventories and a seasonal slowdown in demand. Iron ore prices are near eight-month lows.

But China’s imports of crude oil, copper, iron ore and soybeans all rose in May from a month earlier on a volume basis, suggesting producers remain optimistic about the outlook.

“The copper imports rebound in May is more than market expectations, especially in the off season for copper, suggesting markets had overestimated the slowdown in China’s economic growth and sluggish domestic demand,” said Helen Lau, an analyst at Argonaut Securities in Hong Kong.

Exports benefited from solid demand from Europe and the United States, though trade has been under a cloud since Donald Trump was elected president in November vowing to shrink the large US trade deficit with China.

China’s trade surplus with the US was $22 billion in May, the highest since November and up from $21.34 billion in April, according to data from China’s customs bureau.

Exports to the United States rose 11.7% in May from a year earlier while imports from the US rose 27.1%.