China June imports point to flagging domestic demand

China's imports rose 6.3 percent last month from a year earlier, the customs administration said on Tuesday, less than half the 12.7 percent increase forecast in a Reuters poll as domestic demand flagged in the world's second biggest economy.

The June imports number, which is likely to stoke concerns that monetary and fiscal policy easing conducted by Beijing since the autumn of last year has failed to head off the risk of a hard landing for the economy, was also down sharply from the 12.7 percent annual rise in May.

Exports grew 11.3 percent in June from a year earlier, faster than market expectations for a 9.9 percent increase though easing from May's surprisingly strong rise of 15.3 percent.

That left the country with a trade surplus of $31.7 billion in June, compared with a forecast of $21.0 billion and May's $18.7 billion.

"What we're seeing across the region is weak domestic demand and exporters being able to hold up relatively better, but especially so in China where they just seem to be able to take market share," said Tim Condon, chief economist and head of Asian economic research at ING in Singapore.

"In today's 'accentuate the negative' world, this is going to put the focus on the domestic demand angle and the hard landing story."

Data on Monday showed China's consumer and producer prices eased more than expected in June, signaling falling demand for goods from the manufacturing capital of the world and the likelihood of more policy moves to support the slowing economy.

Weak domestic demand is particularly bad news for China given that the world's biggest exporter is already battling with faltering demand for its products from its biggest customers - the European Union and the United States.

Asian shares .MIAPJ0000PUS pared early gains after the data to stand flat on the day, while U.S. stock futures lightly extended losses, pointing to a weaker opening on Wall Street later in the day. <MKTS/GLOB>

TRADE GROWTH TARGET RISKS

China's annual export growth has weakened from more than 20 percent seen in 2010, with Europe gripped by recession and economic recovery remaining patchy in the United States.

The government's official annual target for growth in both imports and exports in 2012 is 10 percent, a level that Vice Premier Wang Qishan said just last week Beijing would achieve with difficulty and which Commerce Minister Chen Deming said would happen only with a dose of good luck.

Surveys of thousands of purchasing managers in big and small firms across China already suggest that gathering deflationary pressure is a function of falling demand in an economy in need of more aggressive easing to turn the tide.

The People's Bank of China unexpectedly cut benchmark interest rates last week for the second time in a month in a bid to bolster growth. It has also lowered banks' required reserves ratios (RRR) in three 50 basis point steps since November 2011, freeing an estimated 1.2 trillion yuan ($190 billion) to lend.

But that has not stopped economists and investors scaling back their growth calls for China's economy this year and steadily pushing back the consensus view on when the growth cycle is set to bottom from Q1 to Q2 and, increasingly, into Q3.

Analysts polled by Reuters last week forecast China's annual rate of GDP growth will have eased to 7.6 percent in the second quarter of the year versus 8.1 percent in Q1.

It is likely to be the slowest quarter of growth in the country since the first three months of 2009, in the depths of the global financial crisis when world trade ground to a halt.