China’s exports unexpectedly shrank in April but imports surprised with their first increase in five months, painting a mixed picture of the economy as Washington ratchets up pressure on Beijing with threats of more punishing tariffs.

The latest trade data, which would normally be pored over for clues on how the world’s second-largest economy is faring, has been overshadowed by worries that the US-China trade war is escalating, rather than nearing a resolution as many investors had expected.

High-level Chinese and US negotiators will meet in Washington in the next two days, as Beijing tries to avoid a sharp increase in tariffs on its goods ordered by President Donald Trump to take effect from Friday.

Investors have been hoping that China’s April trade data would add to signs that its economy is beginning to steady, easing worries about cooling global growth.

But exports fell 2.7 per cent from a year earlier, customs data showed on Wednesday.

ANZ estimated more than 80 per cent of the headline decline was due to a sharp drop in shipments to the United States, while its high-tech exports continued to be weighed down by sluggish global demand for smartphones and other electronic gadgets.

Economists polled by Reuters had expected growth to slow to 2.3 per cent after March’s surprising 14.2 per cent jump, which some analysts suspected was inflated by seasonal factors and temporary business distortions related to a cut in the value-added tax (VAT) effective April 1.

“The outlook for Chinese exports is challenging. If Trump follows through on his latest tariff threats, we think this would drag down export growth by two to three per centage points,” Capital Economics said in a note.

“Even if a last-minute deal is struck this week to avoid further tariffs, the downbeat prospects for global growth will probably mean that export growth remains subdued.”

Imports, however, beat expectations with a 4.0 per cent rise year-on-year, much better than analysts’ forecasts for a 3.6 per cent fall and March’s 7.6 per cent drop.

The gain was the first since November, suggesting domestic demand is starting to perk up as Beijing rolls out more stimulus, such as higher spending on roads, railways and ports. Imports of copper, widely used in construction and manufacturing, rose from March, but were down on-year.

China’s major trading partners, big multinational suppliers like Caterpillar and global investors have been closely watching to see how long it will take support measures announced in recent months to take hold.

Tang Jianwei, a senior economist at Bank of Communications in Shanghai, said China stands to lose in either case.

“If there is a set-back in trade talks, both external demand and domestic demand could be hit. If the US and China reach a trade deal, China will have to step up imports form the US, which will reduce its trade surplus, which will reduce net exports’ contribution to GDP growth,” he said.

China had an overall trade surplus of $13.84 billion in April, smaller than forecasts of $35 billion.

Its trade surplus with the United States, a major irritant for Washington, widened to $21.01 billion in April, from $20.5 billion in March. China’s imports from the US fell nearly 26 per cent while exports to the US fell just over 13 per cent.

Some analysts believe recent signs of improvement in both the Chinese and American economies may have hardened their negotiating positions on trade after months of progress made when the business outlook appeared much more shaky.

China posted surprisingly strong data for March, but initial April readings have been more subdued, suggesting the economy is still struggling for traction.

Reuters