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Imports increase as exports drop

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China's trade surplus will slow down its pace of expansion, the State Administration of Foreign Exchange (SAFE) said Thursday in a statement on its website.

China's trade surplus reached $19.53 billion in May, a sharp rise from $1.68 billion in April when the country went back to a trade surplus after seeing $7.24 billion in deficit for the first time in nearly six years.

Exports in May were the highest since October 2008, and the growth rate also hit a high since March 2007.

But such a strong growth in trade surplus is not expected to continue. Both Goldman Sachs and USSecurities predicted the trade surplus would fall in June due to a moderation seen in the export demand.

The trade data for June will be released by the General Administration of Customs (GAC) this coming weekend.

The trade surplus is estimated to further decline to $70 billion this year, as the imports would see continued growth while the exports recover, said Sun Chi, an economist with Nomura Securities in Hong Kong.

China's exports dropped substantially due to sluggish overseas demand in 2009 while the imports increased thanks to thriving domestic demand, making the gap shrink to $196 billion in 2009 from $295 billion a year earlier, according to the GAC.

The country's international balance of payments surplus remains "relatively large", as the economic environment stabilizes both at home and abroad, boosting China's international payment transactions, the nation's foreign exchange watchdog also said.

While the surplus is expected to narrow, the capital and finance accounts surplus would continue to grow, as investors' confidence is spurred on by China's strong economic recovery, bringing in large capital inflows, said Lian Ping, chief economist with Bank of Communications.

The exchange rate reform that has been resumed recently fueled the market's bullish sentiment on yuan appreciation, attracting more capital inflows, Lian added.

China's current accounts surplus fell 32 percent from the previous year to $53.6 billion in the first quarter.

Meanwhile, capital and finance accounts saw a surplus of $64.2 billion in the first quarter of the year, compared to a deficit of $12.8 billion during the same time last year, according to revised figures released by SAFE Monday.

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