China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year, a sign that policy makers may have little appetite to allow faster gains in the yuan.

Premier Wen Jiabao’s embrace of higher wages, along with a jump in land and raw-materials prices and a stronger yuan are restraining shipments, the Commerce Ministry said Wednesday. 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, Wang Shouwen, head of the foreign trade department, told reporters in Beijing. 

The yuan weakened last month the most in more than a year, a shift that may stoke the ire of U.S. lawmakers and presidential candidates who see the Asian nation’s competitiveness as a damper on American job growth. China’s surging trade surplus since joining the World Trade Organization a decade ago has helped the country accumulate a record $3.2 trillion in foreign-exchange reserves and made it the U.S.’s 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.”


Yuan Reaction

The yuan was little changed at 6.3628 per dollar at 12:02 p.m. in Shanghai, after earlier declining, testing the weaker end of its permitted trading range for the sixth day.

Stocks rose from Tokyo to Sydney as investors speculated European leaders will agree on steps to ease the region’s debt crisis at a summit tomorrow.

The MSCI Asia Pacific Index of equities gained 0.9 percent as of 2:07 p.m. Tokyo time, the seventh advance in eight days. Standard & Poor’s 500 Index futures climbed 0.5 percent. South Korea’s won led an advance among Asian currencies, strengthening 0.4 percent to 1,126.98 per dollar as of 2:09 p.m. in Seoul.

A report Wednesday showed Australia’s economy grew faster than estimated last quarter on consumer spending and mining-driven investment, spurring the local currency as investors pared bets on the pace of interest-rate cuts next year.

Gross domestic product rose 1 percent in the three months ended Sept. 30, after growing a revised 1.4 percent the prior quarter, the fastest pace in four years. The median of 24 estimates in a Bloomberg News survey was for 0.8 percent growth.



European Production



Industrial production in the U.K. probably fell 0.7 percent in October from a year earlier, according to the median estimate of economists surveyed by Bloomberg News before a report Wednesday. Germany, Europe’s largest economy, may say industrial output rebounded 0.3 percent in October from September, when it dropped 2.7 percent, a separate survey of economists showed.

Consumer borrowing in the U.S. probably rose by $7 billion in October, compared with a $7.4 billion jump the previous month, according to the median estimate of economists surveyed by Bloomberg News before the Federal Reserve releases the figures Wednesday.

China’s export situation is “quite serious” and growth in shipments in November was slower than the previous month, Chong Quan, the country’s deputy international trade representative said after a briefing Wednesday to release a white paper on foreign trade.

Exports rose at 10.9 percent last month from a year earlier, according to the median estimate of 32 economists in a Bloomberg News survey. That would follow 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 November trade data on Dec. 10.

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. 

(Bloomberg)