By staff reporter Wang Jing

(Caijing.com.cn) The collapse in trade is undermining moves to jumpstart economic growth such as inventory investment and high fixed-asset spending, increasing the likelihood of deflation, according to Caijing economist Lu Lei.

Lu said import and export figures are the leading indicators of whether the Chinese economy will be able to come out of stagnancy and shake off deflationary pressure.

China’s GDP grew 6.1 percent year-on-year in the first quarter, with a slump in foreign demand dragging down growth by 0.2 percentage point in the period.

The country’s first quarter exports fell 19.7 percent, while imports plunged 30.8 percent, the first dual double-digit decline since record-keeping began in 1993.

Lu noted that the nation’s future economic growth is under pressure due to the impact of declining imports and exports on inventory and business inputs.

He said that when the country’s import and export growth began to march into negative territory in November, inventory investment also started to decline, which was reflected in the lower industrial value-added output.

The trade slump has also diluted the effect of measures to boost the economy such as the nation’s massive expenditure on fixed assets. Growth in industrial output is declining, while capital, land and labor costs are also falling, which could ultimately lead to deflation, Lu said.

Full article in Chinese: http://www.caijing.com.cn/2009-05-04/110159135.html