China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year, a sign that policymakers may have little appetite to allow faster gains in the yuan.
Chinese Premier Wen Jiabao’s (溫家寶) embrace of higher wages, along with a jump in land and raw-materials prices and a stronger yuan are restraining shipments, the Chinese Ministry of Commerce said yesterday. While the nation can achieve export gains as long as Europe’s crisis doesn’t deepen, it will need to focus on strengthening links with emerging markets, said Wang Shouwen (王受文), head of the foreign trade department, in Beijing.
The yuan weakened last month, the most in more than a year, a shift that may stoke the ire of US lawmakers and presidential candidates who see the Asian nation’s competitiveness as a damper on US job growth. China’s surging trade surplus since joining the WTO a decade ago has helped the country accumulate a record US$3.2 trillion in foreign-exchange reserves and made it the US’ largest overseas creditor.
“The room for yuan appreciation is very limited and the currency will have higher volatility,” said Dariusz Kowalczyk, a senior economist with Credit Agricole CIB in Hong Kong. “It seems China is moving to protect its exporters more aggressively, especially as the external environment deteriorates.”
The yuan was little changed at 6.3628 per US dollar at 12:02pm in Shanghai yesterday, after earlier declining, testing the weaker end of its permitted trading range for the sixth day.
China’s export situation is “quite serious” and growth in shipments last month was slower than the previous month, Chong Quan (崇泉), the country’s deputy international trade representative, said after a briefing yesterday to release a white paper on foreign trade.
Exports rose at 10.9 percent last month from a year earlier. That follows a 15.9 percent increase in October, which was the slowest pace since gains resumed in December 2009 after the global financial crisis, excluding holiday distortions.
The customs bureau is scheduled to release last month’s trade data on Saturday.
The recent decline in the yuan’s exchange rate is a “good thing,” Chong said. It shows the currency is responding to market demand and that China is not manipulating the value of the yuan, he said.