Ouch. Double ouch.

Chinese exports slumped 25.7 per cent in February, much higher than analysts had expected, as the global economic crisis began to take its full toll on the country’s export sector. (FT)

The January numbers were also awful, but not quite as bad as some had predicted. February killed the hopes of all those "turning the corner" optimists, I think.

So what’s the good news? Stimulus.

Despite the weak trade numbers, analysts were also surprised by the rapid rate of increase in fixed asset investment, which rose 26.5 per cent in January and February, up from a growth rate of 21.9 per cent in December. “The rebound is coming much more quickly than we had expected,” said Yu Song, economist at Goldman Sachs in Hong Kong.

Within those figures, transportation investment – one of the priorities of the fiscal stimulus plan – rose 210 per cent over the same period the year before, while property investment was up only 1 per cent, a sign of the continued weakness in the housing market.

I’m always happy to hear about an increase in transportation investment versus real estate. The big worry was that in addition to unnecessary real estate projects, the economy would be saddled with a lot of new capital investment in industries (e.g. steel) with a huge amount of overcapacity. Of particular concern are export manufacturing industries. I suppose that this news suggests that targeting of the stimulus money has escaped some of the worst possible outcomes.

With exports and imports down by roughly the same magnitude, the situation is not pretty. Despite the positive spin one can put on the stimulus policy, there are also plenty of folks out there that are now calling for additional spending, now that we’ve seen that the downturn is much more precipitous than we thought.

I’m also not completely sold on the idea that the stimulus is being handled optimally. After having seen how U.S. bailout money has been handed out and the spotty historical record of capital allocation in this country, I think I’ll just sit back and keep my fingers crossed.