By Kevin Yao
BEIJING (Reuters) - A bigger-than-expected slide in China's imports in May strengthened expectations more policy stimulus may be needed to avert a sharp slowdown in the world's second-largest economy.
Economists say persistent weakness in the country's imports
point to a slackening domestic economy. Meanwhile, erratic global demand and a relatively strong yuan, also cast doubts over the government's ability to hit its full-year trade growth target of six percent.
Annual exports in May fell 2.5 percent while imports tumbled 17.6 percent, data from the General Administration of Customs showed on Monday.
"The data shows the Chinese economy is still in the process of seeking a bottom. We expect trade conditions to continue to be sluggish in the following 4-5 months, with more government policy rolling out to stabilise (the economy)," said Liu Yaxin, macro strategist at China Merchants Securities in Shenzhen.
Liu added that Chinese companies were being outflanked in global markets due to a relatively strong yuan currency.
China posted a near record trade surplus in May of $59.49 billion, but weak imports highlight slowing domestic consumption.
Many analysts have already pencilled in sub-7 percent growth for the second quarter, raising the risk that the government will not meet its full-year growth target of around 7 percent.
China's exporters have been struggling to cope with weak overseas demand, rising labour and currency costs, exacerbating downward pressure on the economy.
In May, exports to the United States, China's top export market, rose 7.8 percent from a year earlier, while shipments to the European Union, the second largest market, dipped 6.9 percent, customs data showed.
China's leading index on exports fell in May, the third straight month of decline, heralding "the relatively big pressure" on exports this year," customs said.
The yuan
TEPID DOMESTIC DEMAND
Imports of oil and iron ore in May fell 11 percent from a year earlier, underscoring soft demand at home and oversupply. Bloated stocks could take months to draw down, prompting steel mills to pump up exports of steel even at weak prices.
"The price differentials in May were not favourable for imports. That, coupled with continued weak demand for financing buying, pushed down the inflows," said Jin Yidan at Minmetals Jingyi Futures.
China's trade grew 3.4 percent in 2014, missing Beijing's growth target of 7.5 percent by more than half.
Combined exports and imports fell 8.0 percent in the first five months from a year earlier, customs data showed.
"The government set up the target of trade growth at 6 percent this year, which at this moment, is still impossible to achieve, particularly with the weak imports," said Haibin Zhu, chief China economist at JPMorgan (NYSE:JPM) in Hong Kong.
"Even with export growth, it's quite challenging to meet the six percent target."
Economists polled by Reuters expect some signs of steadying in the economy in the months ahead thanks to stimulus measures, but say more policy support may be needed.
China cut interest rates for the third time in six months in May - on top of two reductions in the amount of money banks must keep in reserve - in a bid to lower borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century.