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China Reports Less-Than-Estimated Surplus

China reported a less-than-estimated $13.1 billion trade surplus in May, as surging imports signaled the nation’s demand may support global growth while adding pressure for higher interest rates.

Inbound shipments climbed 28 percent from a year earlier and exports rose 19 percent, the customs bureau said on its website. The median estimate in a Bloomberg News survey of 23 economists was for a $19.3 billion surplus.

Today’s data may alleviate “fears of a sharp slowdown and thus marginally increase the chance of further rate hike,” said Li Wei, a Shanghai-based economist at Standard Chartered Bank. Investors “should prepare for a possible interest-rate hike over the weekend,” he said.

The International Monetary Fund said yesterday that China can sustain economic growth of about 9.5 percent this year and next even as the government cools the real-estate market and reins in bank lending to counter inflation. Australia & New Zealand Banking Group Ltd. said today that an increase in banks’ reserve requirements may be imminent, describing this weekend and the coming week as “a sensitive period.”

Reserve requirements for the biggest banks stand at a record 21 percent, while the key one-year lending rate is 6.31 percent after four increases since September.

The Shanghai Composite Index swung between gains and losses before closing up 0.1 percent. Chinese stocks traded in Hong Kong are the world’s worst performers this month as allegations of fraud at some smaller companies add to slowdown concerns.

Betting on Yuan

Non-deliverable yuan forwards traded at 6.3920 per dollar as of 16:29 p.m. in Hong Kong, indicating the currency may gain about 1.4 percent in 12 months. The contracts fell the most in three weeks yesterday on signs that global growth may falter as rising unemployment and falling home prices hamper the expansion in the U.S., the world’s biggest economy.

Median forecasts were for a 20 percent gain in exports and a 22 percent increase in imports. In April, exports rose 30 percent and imports gained 22 percent. In May, the value of exports was $157 billion and imports were $144 billion.

Chinese officials can point to a 35 percent decline in the trade surplus over the first five months from a year earlier as evidence of progress in redressing global economic imbalances.

Exports “look solid for now, and this should embolden Beijing to allow further gains in yuan against the dollar as part of broader efforts to contain inflation,” said Brian Jackson, an economist at Royal Bank of Canada in Hong Kong. He sees the yuan at 6.20 per dollar by year-end, from about 6.48.

‘Substantially Undervalued’

The U.S. is pressing for bigger gains in the currency, described as “substantially undervalued” by the Treasury Department in a May 27 report.

The IMF said yesterday that a stronger currency would help to prevent a rebounding surplus in China’s current account, the broadest measure of trade. The World Bank, meanwhile, said June 8 that gains in the yuan would help to tame inflation.

China is set to release May inflation data on June 14, with analysts’ median forecast indicating consumer prices rose 5.5 percent, the biggest gain in almost three years.

Ahead of today’s data, Industrial Bank Co. and Societe Generale SA said that a decline in commodity prices and destocking by companies could limit import growth. In a preview of the trade numbers, London-based Capital Economics Ltd. said that world demand is “apparently slowing,” suggesting weaker growth in China’s exports “in the months ahead.”

Commodity Demand

“The overall strength in imports suggests that China’s domestic demand has not slowed as much as the market may have feared,” said Wang Tao, a Beijing-based economist for UBS AG. “This is very much in line with our forecast of a modest slowdown in overall growth this year,” she said, predicting an economic expansion of 9.3 percent.

Capital Economics said that commodity imports “remain much weaker than a few months ago but they have recovered slightly.” China imported more crude oil, iron ore and soy beans in May than in April and less copper.

Signs are mixed on the trade outlook. While U.S. unemployment and Europe’s debt crisis fuel concerns, the IMF said yesterday that it hadn’t revised a 4.4 percent forecast for global growth this year. FedEx Corp. (FDX), the biggest air-cargo carrier, and Cathay Pacific Airways Ltd. predict a pickup in freight demand in the second half.