While stock market investors were cheering yesterday's dramatic relief rally, which saw the Hang Seng Index shoot up 10.24 per cent, economists were drawing encouragement from another source: China's surprisingly strong September trade figures. Confounding forecasts, the mainland's trade surplus rose to a record high of US$29.3 billion last month, raising hopes that the country can buck the global economic trend and that growth will remain strong both this year and next. Researchers at the elite Chinese Academy of Social Sciences have clearly signed up to this point of view. Last week, they predicted that the mainland's economy would barely slow despite the worldwide financial crisis, forecasting growth of 10.1 per cent this year and 9.5 per cent next year. Any apparent slowdown would be a normal fluctuation in growth, they argued, adding 'there is not enough evidence to say that an economic downturn is taking place'. In the face of such Panglossian optimism, it seems churlish to strike a negative note, but the truth is that the global crisis is already affecting China and that its impact is likely to become a lot more severe over the coming months. For a start, last month's 'record' trade surplus is only a record if you measure it in US dollar terms. Looking at the data in yuan terms - which would seem to make a lot more sense given that the yuan is the Chinese currency and this is the Chinese economy we are talking about - shows that the record was actually reached in June last year, before the credit crunch began to bite. More to the point, last month's undeniably large surplus was the result primarily of a slowdown in import growth. This is attributable mainly to the recent fall in commodity prices, but it could also be due partly to softening Chinese demand for raw materials as export orders ease. Certainly, with stockpiles of some commodities at record levels, mainland companies are either asking their overseas suppliers to delay shipments or are walking away from purchase contracts. The worrying thing here is that declining import growth today may well be a lead indicator of slowing export growth tomorrow. If so, last month's wide trade surplus is the result only of a time lag and is a negative signal rather than the good news some analysts believe. Indeed, the mainland's export growth is already beginning to slow. Once again, the official figures showing an impressive 21.5 per cent expansion in exports last month compared with September last year were stated in US dollar terms. But in the 12 months to September this year, the US dollar fell 9 per cent against the yuan. As the first of the two charts below shows, restating export figures in yuan terms gives growth last month of just 10.4 per cent - less than half the official rate - and reveals a clear declining trend. And things are going to get worse over the coming months. Much of China's headline growth in exports over the past year or so has been supported by strong demand from Europe, which overtook the United States as China's biggest export market as shipments across the Pacific slowed in line with US consumer spending. But as the second chart shows, that apparent demand growth from Europe was an illusion created by the strength of the euro. Restating the mainland's exports to Europe in terms of the euro shows another clear slump in growth. Following the 15 per cent fall in the euro against the US dollar over the past three months, that slump will soon begin to show up in China's headline trade figures. Of course, there is still plenty Beijing can do help the export sector and support growth. The government is already offering tax breaks to some exporters and more interest rate cuts are likely. But with clear signals that export growth is already softening, it is nonsense to argue from last month's trade figures that the global economic slowdown will have no effect on China.