July 10 (Bloomberg) -- China’s exports fell for an eighth month as the global recession cut demand, highlighting the economy’s dependence on stimulus spending to revive growth.

Overseas sales slid 21.4 percent in June from a year earlier, the customs bureau said today on its Web site, after a record 26.4 percent drop in May.

Imports fell a less-than-estimated 13.2 percent, the smallest decline in eight months, signaling that the worst may almost be over for the nation’s trade. China, the world’s second-biggest exporter, has stalled gains by the yuan against the dollar and increased export-tax rebates as the government’s 4 trillion yuan ($585 billion) stimulus package drives an economic recovery.

“There’s light at the end of the tunnel, given that imports are a leading indicator for exports in China,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong. “The worst for exports will be over soon.”

Premier Wen Jiabao said the foundations for an economic recovery are not yet solid and pledged to continue a pro-active fiscal policy and moderately loose monetary policy, a statement on the government’s Web site said today.

June’s fall in exports almost matched the median estimate in a Bloomberg News survey of 19 economists for a 21 percent decline. The nation’s run of export declines is the longest since during 1995 and 1996.

The yuan closed at 6.8328 against the dollar in Shanghai, from 6.8326 before the data was released. The central bank has kept the yuan stable in the past year after the currency gained 21 percent against the dollar between July 2005 and July 2008.

Shrinking Trade Surplus

Exports gained a seasonally adjusted 4.5 percent from May and imports rose 2.2 percent, the customs bureau said.

The trade surplus narrowed to $8.25 billion, the smallest in two years, excluding the first two months of each year, when a Chinese holiday causes distortions. The decrease in imports from a year earlier slowed from a 25.2 percent decline in May. Economists’ median estimate was for a 20.3 percent slide.

“China’s domestic demand is now growing more strongly,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “That’s bringing down the trade surplus and that’s going to reduce protectionist pressures.”

Higher commodity prices also have boosted the import bill, said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.

Ethnic Riots

The government aims to revive economic growth to create jobs and maintain social stability ahead of the 60th anniversary of Communist Party rule in October. Riots in the northwestern Urumqi city on July 5 left 156 people dead, highlighting ethnic tensions and economic disparities.

An almost fivefold jump in new loans last month, announced by the central bank this week, extended a credit boom that’s fueling growth and may also be inflating bubbles in stocks and property.

The benchmark Shanghai Composite Index has surged more than 80 percent from last year’s low on Nov. 4. Guilin Sanjin Pharmaceutical Co. and Zhejiang Wanma Cable Co., the first two companies allowed to go public in China since September, surged on their stock market debut today.

China failed today to attract enough bidders in a government debt sale for a second time this week on speculation that the record bank lending will spark inflation in the world’s third-largest economy.

Second-quarter gross domestic product will be announced on July 16. The economy grew 6.1 percent in the first quarter from a year earlier, the weakest pace in almost a decade.

Government’s Target

Economic growth will top the government’s 8 percent target for the year as lending and investment surge, according to Goldman Sachs Group Inc. and BNP Paribas SA.

Export growth may return to “normal” by the end of this year or early 2010, central bank adviser Fan Gang said July 1, as a government-backed manufacturing index showed export orders expanded for a second month.

A recovery in export demand may be slowed by rising unemployment in the European Union and the U.S., China’s top two overseas markets. U.S. companies have slashed about 6.5 million jobs since the recession began in December 2007, the most of any slump since World War II, and European retail sales fell more than economists forecast in May.

Exports to the U.S. fell 16.9 percent in the first half of 2009 from a year earlier, the customs bureau said. Shipments to the European Union declined 24.5 percent.

Lenovo Group Ltd., China’s biggest maker of personal computers, posted a record loss in the three months ended March 31 as sales in the Americas plunged.

Besides weaker demand, protectionism may also be a threat as governments around the world seek to support local industries. China’s commerce ministry said June 29 that it’s “very concerned” about anti-dumping and anti-subsidy investigations of Chinese steel products in the U.S.

--Li Yanping, Kevin Hamlin. Editors: Paul Panckhurst, Craig Stirling.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

Last Updated: July 10, 2009 07:07 EDT