BEIJING China's surprisingly strong trade performance in September may reduce the chances of aggressive policy action such as an interest rate cut, but the prospects of a prolonged property slump suggests more measures are still needed to shore up the economy.
With the euro zone and Japanese economies floundering, a bounce in China's exports and imports would be welcome news for the world economy and investors increasingly worried about flagging global growth.
But economists said it was too early to tell if China's trade sector has turned the corner, noting that its unexpectedly buoyant imports last month could be due to one-off factors, such as factories taking advantage of sliding global commodity prices to replenish inventories of iron ore, copper and oil.
"Today's data is less good news than it appears," said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong.
"It suggests that China's export growth is holding up. However, the important caveat coming from the breakdown of the import data suggests that demand growth in China’s own economy remains weak."
Exports rose 15.3 percent in September from a year earlier, beating a median forecast in a Reuters poll for a rise of 11.8 percent and quickening from August's 9.4 percent rise, data showed on Monday.
Imports rose 7 percent in terms of value, compared with a Reuters estimate for a 2.7 percent fall, which would have marked their third consecutive decline. Iron ore imports rebounded to the second highest this year and monthly crude oil imports rose to the second highest on record.
As a result, China posted a trade surplus of $31.0 billion in September, down from $49.8 billion in August.
Most analysts expect China's exports to stay relatively robust in the coming months as the U.S. economy strengthens.
But they say it is too early to see a pick-up in China's domestic demand as its property market continues to cool, weighing on the broader economy.
"We expect the surge in import growth to prove short-lived," Julian Evans-Pritchard, China Economist at Capital Economics, said in a research note.
Other September activity and investment data and readings on third-quarter gross domestic product (GDP) on Oct. 21 are all expected to point to an economy that is still wobbling.
The latest Reuters poll, conducted before the trade data, showed the economy likely grew at its weakest pace in more than five years in the third quarter as the property downturn weighed on demand for everything from glass to cement and steel.
The number of earth excavating machines sold in China fell by nearly 28 percent in August from a year ago, according to a note from Bank of America Merrill Lynch last month.
"An ongoing slowdown in domestic demand would be likely to add to pressures for further stimulus measures - and, in turn, policy-makers' response will be a key indicator for the medium-term economic direction," Fitch Ratings said on Monday.
"Fitch continues to believe that the authorities' strategy is to allow for a gradual correction in the housing market by supporting consumer demand through targeted measures, for example to boost mortgage lending."
The property downturn is widely seen by analysts as the biggest single threat to China's economy, and the extent of the slowdown there could well determine the shape and scope of any more stimulus measures that Beijing rolls out in coming months.
Facing falling house prices in a record number of cities, a growing number of bad loans and fears that cash-strapped property developers could be pushed into default, the government relaxed lending rules for home buyers in late September.
But it is not yet clear if that move will be enough to stabilize prices. Economists cite huge inventories of unsold homes and state media report that banks are reluctant to offer big discounts on mortgages for fear of hurting their earnings.
Buffeted by unsteady exports and the housing downturn, China's economy has had a bumpy ride this year, prompting a flurry of government stimulus measures aimed at the most vulnerable sectors.
However, policymakers have stressed they will not launch another massive stimulus spending program like the one employed during the 2008/09 global financial crisis. That credit spree fueled rampant speculation, especially in the property market, and left many local governments saddled with debt.
Many economists believe the long-awaited bounce in exports, if sustained, could encourage the central bank to avoid cutting interest rates - widely seen as the last resort policy measure if growth slows sharply.
"Probably we won't be able to see any cuts in interest rates or bank reserves across the board within the year," said Wen Bin, senior economist at Minsheng Bank in Beijing.
Instead, the government is likely to step up infrastructure investment in selected areas such as public housing and railways, he said.
Top policymakers have issued a steady stream of reassurances about the economy in recent days, acknowledging the property market weakness but citing among other things a strong services sector and a still resilient labor market.
Premier Li Keqiang said last week that the government will launch major investment projects in information networks, water conservancy and environmental protection this year and said policies would be kept flexible and "targeted".
The recent bailout of bondholders of troubled Chinese solar equipment producer Chaori shows the government is determined to shield its rapidly growing corporate bond market in a slowing economy, analysts and traders said.
Premier Li said late last week that China will avoid a hard landing despite worries over the real-estate market.
He also said he was confident the economy would continue to grow at a "medium to high tempo", forecasting growth of about 7.5 percent this year despite turbulence in the world economy.
(Additional reporting by Shao Xiaoyi, Koh Gui Qing and Jake Spring; Editing by Kim Coghill)