Chinese imports and exports fell in January, the first declines in two years and a potential reflection of worsening economic conditions at home and abroad.

Official trade data released Friday showed imports falling 15.3% from a year earlier and exports retreating 0.5%. The nation’s trade surplus rose to a six-month high of $27.3 billion.

Though both measures were distorted by the weeklong lunar New Year holiday, the plunge in imports reflected a weakening property sector and a scaling back of infrastructure building.

That's of particular importance to the Chinese economy, which relies on so-called fixed-asset investment for up to 70% of its economic output -- a level that has no comparison among other major economies. 

"A fall of over 15% [in imports] in January cannot be entirely explained by the lunar calendar, and adds weight to the view that economic output is slower than headline indicators might suggest," said Alistair Thornton of IHS Global Insight in Beijing. "Such a dramatically low import number reflects extremely weak domestic demand, as investment slumps and drags on economic activity."

In a separate research note released earlier, Thornton noted recent steep declines in freight volume, cement production and even excavator sales as evidence a sharper than expected slowdown in China could not be discounted.

That would be a severe blow for the global economy, which has come to see China as a rare bright spot.

China's economy expanded 9.2% last year, off from 10.4% in 2010. The Chinese government is trying to engineer a steady slowdown to put the country on a more sustainable rate of growth that doesn't require over-investment and massive credit expansion. Many economists expect the Chinese economy to grow by over 8% this year.

"We continue to forecast the gradual slowdown that has been in place over the last 12 months to extend into 2012 but not to worsen into a severe downturn, barring a significant further deterioration in the external outlook," said Brian Jackson, an economist for Royal Bank of Canada.

Indeed, the debt crisis in Europe remains a troubling uncertainty. Earlier in the week, the International Monetary Fund warned that growth in China could be cut in half if Europe were to suffer a major recession. 

"The channels of contagion would be felt mainly through trade, with knock-on effects to domestic demand," an IMF report said. "The risks to China from Europe are … both large and tangible."

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