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China is preparing for a surge in infrastructure investment in the second half of the year after iron ore imports jumped almost 20 per cent in May, ahead of the government restarting stalled rail, steel and road projects.

The central government had budgeted to spend 2.9 trillion yuan ($446?billion) on selected infrastructure projects this year, but is well behind on its program after engineering a slowdown last year.

“They have lots of catching up to do in the second half,” Macquarie’s Shanghai-based commodities analyst, Graeme Train, said. “You can expect some very strong year on year growth numbers.”

Large commodity stockpiles across China have spooked investors in recent weeks but traders warn not to misinterpret the towering mounds of red earth.

At the world’s largest iron ore port, Rizhao in north-eastern China, the stockpile stands at a record 16 million tonnes, covering an astonishing 10?square kilo­metres.

But Minglei Ji, an iron ore trader from the Xingye Group, said supplies were increasingly being held at port, as steel mills ran down inventory and attempted to push more risk onto traders.

Market watchers argue that a more relevant figure is China’s so-called “stock to use ratio” – the rate at which iron ore is consumed compared with supplies – which stands near a decade low of 1.4 months.

Mr Ji expects strong second-half growth as China’s new leadership team, to be unveiled in October, needs to show it is managing the economy well.

“In China, politics and the economy are intertwined,” he said.

“New projects will improve the economy in the second half.”

Mr Ji said demand from these projects should keep the iron ore price around historically high levels of $US140 a tonne.

The government also appears to have more room to stimulate the economy, after inflation rose at a slower than expected 3 per cent in the year to May.

China cut interest rates for the first time in three years, before the release of weaker than expected inflation numbers on Saturday.

The Chinese economy is giving mixed signals to investors.

On the one hand industrial production grew at a disappointing 9.9?per cent in May, its slowest pace in nearly three years. While on the other hand, May export data, also released on Saturday, showed a surprisingly strong 15.3 per cent increase from last year, although analysts caution the figures are from a low base.

Crucially for Australia, commodity demand on the back of new projects appears to be robust.

Just this week China said 28 mainland cities had approval to build urban rail lines. A 16.8 billion yuan contract to build a new metro line in the southern city of Shenzhen has already been let, as has one for an undisclosed amount in the northern port city of Qingdao.

Over the next four years China plans to spend 1.2 trillion yuan to build 2500 kilometres of urban railway, according to the China Urban Mass Transit Association.

This strong pipeline of projects, which also includes steel mills, power plants and roads, appears to have fuelled record commodity imports.

Copper imports in May rose 12 per cent from a month earlier and climbed 65 per cent from last year. Crude oil imports were also a record 6 million barrels in May.

However, analysts caution that the copper number may have been exaggerated because of a one-off financing deal.

China’s iron ore imports climbed to 63.84 million tonnes in May, up 10.7 per cent from the preceding month and nearly 20 per cent higher than last May. Imports are likely to be strong again next month after Port Hedland in Western Australia shipped record volumes in May. It takes up to 40 days to ship the iron ore to China.

Demand for iron ore is being fuelled by near record steel production of 2 million tonnes a day. Overall steel production is set to increase by about 3.5 per cent this year.

Over the first four months of the year, China spent 700 billion yuan on selected infrastructure projects, leaving 2.2 trillion yuan to be spent in the final eight months of the year if the central government is to meet its budgeted spending

This implies a 35 per cent increase in monthly spending over the remaining eight months of the year.

Economists expect this should hold economic growth around 8 per cent for the year.

Niu Li, a senior economist with the State Information Centre, a government think tank, believes China’s economy will improve in the second half.

“China’s trade figure will look good in the second half because of the low base last year,” he said.

“Factories, which have been de-stocking over the first half, will also expand production in the second half.”

Mr Niu said growth might fall to as low as 7.5 per cent in the first half, but would bounce back in the third and fourth quarters.

“There is no need to worry too much about China’s economy. China is confident and capable of maintaining stable and relatively fast growth.”