Exports surged 35.8 percent to US$135.95 billion in the January-July period, producing a surplus of US$14.34 billion, the Ministry of Foreign Trade said. That compared to a surplus of US$11.3 billion in the same period last year.

The consumer price index rose 0.5 percent year-on-year in July, the third month the key inflation indicator has been positive, evidence that the deflation which has plagued the economy for three years, was on the wane.

Analysts said strong exports and the return of domestic consumption would propel economic growth in the second half of this year, replacing some government spending.

But breakneck export growth was likely to slow later this year, leaving China more dependent on consumption, which is still struggling to make a comeback, they said.

China's GDP rose 8.2 percent year-on-year in the first half of 2000, helped by exports and high government investment.

China has set a growth target of around seven percent this year against 7.1 percent for all of 1999.

Consumption Eyed for Bigger Role

"The broader picture is one of an economy turning forcefully around from a cyclical slowdown which lasted for some seven years," Kwok Chuen Kwok, chief economist for Standard Chartered Bank in Hong Kong, said in a recent report.

But export growth was clearly slowing, analysts said. In July, exports rose 24.1 percent year on year to US$21.48 billion, producing a trade surplus of US$1.99 billion.

Imports rose a year-on-year 40.1 percent in July to US$19.49 billion as ailing state firms brought in more equipment for technology upgrades, analysts said.

Although export growth was still healthy last month, a high base of comparison from last year and weaker sales to the United States put exports off their blistering 45 percent year-on-year rise in June, they said.

"The slowdown in export growth in July was mainly because of a high base of comparison," said Zhang Yongjun, an analyst at the State Information Center, a government think-tank.

"Imports are vigorous, which means domestic demand is rising," he said. "GDP might not slow appreciably in the second half."

China desperately hopes domestic consumption will return in force to power the economy.

Chinese have been reluctant to spend due to worries reforms to ailing state firms and the social security system will cost them jobs and benefits.

CPI, which includes services, rose 0.2 percent year on year in the first seven months of this year, the statistical bureau said.

"Generally speaking, domestic demand is growing more vigorous," said Bu Deying, a senior economist with the State Information Center.

"Consumer confidence is increasing."

The bureau said falls in fruit and vegetable prices kept consumer inflation in check in July while rises in costs of services and housing offered support, it said.

The narrower retail price index dropped 1.2 percent year-on-year in July and slid 1.8 percent in the first seven months of 2000, the bureau said.

RPI has been negative since October 1997. But some analyst said it was too early to declare the end of price deflation.

"The head winds of deflation are still fairly strong considering state-owned enterprise restructuring is expected to move ahead swiftly from here on," said Paul Schymyck, regional economist for think-tank IDEA Global in Singapore.

"That will be offsetting improvements in exports and new foreign direct investment commitments."

(Xinhua)