China investment surge boosts recovery hopes

By Jason Subler and Hideyuki Sano
BEIJING/TOKYO (Reuters) - Chinese investment surged in May, adding to hopes the world's third largest economy may lead a recovery, but a record slump in Japan's first-quarter GDP reinforced expectations its rebound from recession will be slow.
China's investment pick-up, which comes on the back of massive government stimulus spending, offset surprisingly weak figures for exports and imports, which both fell for a seventh consecutive month and at an accelerating pace.
There was positive news from Australia, where a smaller-than-expected fall in employment built on hopes the country, which has so far dodged falling into recession, will see an economic revival sooner than other developed nations.
Global data in recent weeks has pointed to a rebound from the deepest recession in six decades, driving stock markets sharply higher from a March trough, but worries about the ballooning U.S. trade and budget deficits hang over the nascent recovery.
U.S. Treasuries edged up in Asian trade, after the benchmark 10-year yield advanced to 4 percent overnight, the highest since October 16, on concern about how expensive it will be for the U.S. government to finance its growing budget deficit.
"The risk of rising yields should not be discounted," said Joseph Brusuelas of Moody's Economy.com. "If continued, they will reduce home mortgage refinancing and curtail corporate borrowing, both critical to an economic recovery."
STIMULUS PLAN
China has sought to cushion the blow from falling exports with a 4 trillion yuan ($585 billion) economic stimulus plan.
Data on Thursday showed annual growth of fixed asset investment in urban areas in the January-May period accelerated to 32.9 percent. from 30.5 percent in the first four months of the year, suggesting the stimulus is working.
"I think this is a welcome sign of momentum building in the Chinese economy, and it's good for the global outlook," said David Cohen of Action Economics in Singapore.
Underpinned by optimism over the Chinese economy, commodity-related stocks in Asia rose for a third straight day while oil prices extended gains to seven-month highs.
The need for government pump-priming was underlined by May customs data that showed exports fell 26.4 percent on the year, while imports fell 25.2 percent, resulting in a trade surplus of $13.4 billion, compared with $13.1 billion in April and $18.6 billion in March.
"I've always been pretty conservative with China's import and export forecasts, and I think they haven't reached a bottom yet, because the U.S. and European economies are still deep in recession," said Sherman Chan of Moody's Economy.com in Sydney.
However, she also noted that trade flows today reflect orders placed several months ago, when the global economy was in dire straits. Investment, by contrast, is a better leading indicator.
Japan's economy contracted a revised 3.8 percent in the first three months of the year, better than economists' median forecast of 4.0 percent, which was the same as the initial estimate, but still the fastest pace since World War Two. Continued...
Source: Reuters