China's Export Growth Unexpectedly Accelerates to 28% !!!!

[LOSO]

June 11 (Bloomberg) -- China's export growth unexpectedly accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand will trigger an economic slump.

Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, the customs bureau said on its Web site today. That was more than the 20 percent median estimate of 17 economists surveyed by Bloomberg News.

Exports to the U.S. accelerated, withstanding a 10 percent gain in the yuan against the dollar in the year through May. Imports jumped 40 percent because of soaring raw-material costs, supporting the central bank's case that inflation is a bigger threat than weakening global demand.

``This is very good news for the central bank, backing up their argument that exports are not collapsing,'' said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai. ``It gives them more space to raise interest rates and let the yuan appreciate faster to curb inflation.''

The trade surplus was $20.2 billion, down from $22.4 billion a year earlier and less than the $21.3 billion estimate in the survey of economists. For the first five months, the surplus has narrowed 9 percent from a year earlier.

Surging prices for iron ore, crude oil, oil products, coal and soybeans drove the biggest increase in imports in almost four years, according to the customs bureau. The gain was 26.4 percent in April.

U.S. Demand

The yuan rose to the highest since a fixed-exchange rate ended in 2005, trading at 6.9208 versus the dollar as of 4:37 p.m. after closing at 6.9255 yesterday.

Exports to the U.S. rose 9.1 percent in the first five months from a year earlier, up from the 6.9 percent gain through April, the customs bureau said. Shipments to the European Union climbed 27.4 percent, an increase from 25.4 percent.

TCL Corp., China's biggest electronics maker, said mobile- phone exports soared 62 percent in May from a year earlier.

``Export growth held up partly because the U.S. economy appears to be recovering better than expected,'' said Shen Minggao, an economist at Citigroup Inc. in Beijing. ``Another factor may be that there were more working days in May than last year, when there was a seven-day holiday.''

The central bank cautioned on June 3 against exaggerating the risk that weakening global demand would lead to a hard landing for the world's fourth-largest economy.

Machinery and electronic exports climbed 59 percent from a year earlier. Trade with India surged 70 percent in the first five months, the quickest gain among China's top 10 trading partners, the customs bureau said.

Inflation Fight

China has already let the yuan gain more than 5 percent versus the U.S. dollar this year, a faster pace than the 7 percent increase for all of 2007. That has cut import costs and also put pressure on exporters by making their products more expensive in overseas markets.

U.S. Treasury Secretary Henry Paulson said yesterday that a more flexible currency could be a ``valuable tool'' to help China cool inflation. The U.S. and Europe argue that China's government has kept the yuan artificially weak to help exporters.

Producer prices rose 8.2 percent in May, the biggest increase in more than three years, the statistics bureau said today, indicating consumer-price inflation may rebound.

Consumer prices rose 7.7 percent last month, two government officials said yesterday, citing statistics bureau data. April's 8.5 percent pace was the fastest in almost 12 years.

Banks' Reserves

Besides letting the yuan gain, China has ordered lenders to set aside a record 17.5 percent of their deposits as reserves from June 25 to try to prevent excess cash in the financial system from fueling inflation.

So far, China has kept interest rates on hold this year to avoid attracting more speculative capital from abroad into an economy already flooded with cash. The benchmark one-year lending rate is 7.47 percent, and the equivalent for deposits is 4.14 percent.

The central bank said on June 3 that the world's fastest- growing major economy was shifting from ``heated'' to more stable growth after a 10.6 percent expansion in the first quarter.

Growth will slacken for the rest of 2008 and 2009 on weaker export gains, the Organization for Economic Cooperation and Development said on June 4.