China's exports rose in May at more than double the pace analysts estimated while industrial output and retail sales trailed forecasts, signaling that last week's interest-rate cut was aimed at countering a domestic slowdown.

Overseas shipments climbed 15.3 percent from a year earlier, the customs bureau said yesterday, exceeding all 29 estimates in a Bloomberg News survey. Industrial output gained by less than 10 percent for a second month and retail sales increased the least in almost six years excluding holiday-month distortions, statistics bureau reports showed June 9.

China's trade resilience signals Europe's crisis has yet to spark a collapse in world commerce on the scale of 2008, even as Spain's banking woes threaten to deepen the trauma. Stronger exports and imports also support the case for Premier Wen Jiabao to adopt a more restrained stimulus than the credit boom officials unleashed in 2008, which stoked a property bubble.

“The better-than-expected trade data should help alleviate ongoing concerns of a sharp growth deterioration in the near term,” said Sun Junwei, a Beijing-based economist with HSBC Holdings Plc. “The key to securing a soft landing pivots on reviving domestic demand and that will necessitate more stimulus but it will be more measured than in 2008 and monetary policy won't be eased excessively.”

The government may boost tax cuts and speed up spending on public works to ensure growth of more than 8.5 percent in the second half of the year, the bank says. Further reductions in interest rates are “possible” and reserve requirements may be cut four more times this year to spur lending, according to Sun.

Eoin Treacy's view China crosses a Rubicon in terms of its development a few years ago where it now gets more benefit per Dollar invested in developing its human capital than from infrastructure development. This is being reflected in how government implements policy. The focus on reducing property prices, raising the minimum wage, improving healthcare, liberalising the hukou household permit system, developing the interior, rationalising inefficient sectors and promoting high value added sectors among other initiatives can all be seen as part of the plan to avoid the “middle income trap” experienced by other countries on their paths to development.

Therefore it would be out of character to expect a massive building spree to help bolster growth. The more logical expectation would be to look for evidence of how the Chinese plan to improve living standards, stimulate the consumer economy and to animate the massive pool of domestic savings. The evolution of a consumer and services sector capable of complementing the country's industrial prowess is a major undertaking and will need constant care.

The Shenzhen B-Share Index which is more influenced by smaller consumer oriented companies than the banks, materials and industrials dominated Shanghai-A Shares Index has returned to test the 600 area which marks the upper side of the underlying range. It will need to continue to find support above that level if potential for additional upside is to remain credible.

The US listed Global X China Consumer, Energy, Financials, Industrials, Materials and Technology sectors have all returned to potential areas of support and sustained moves below last week's lows will be required to check current scope for a further unwind of short-term oversold conditions.