China’s commerce ministry signaled concern that weakness in the yen is limiting Japanese demand for exports just as a stronger yuan weighs on Chinese manufacturers’ global sales.
Japan’s policy of monetary easing “makes it hard for China to increase exports to Japan,” Shen Danyang, a ministry spokesman, said at a briefing in Beijing today. The rising yuan is eroding profit margins of Chinese exporters, he said.
Japan today reported accelerating growth that contrasts with a slowdown in the Chinese economy. The weaker yen, down 16 percent against the dollar this year, may add to strains on a trade relationship that hasn’t fully recovered since a territorial dispute sparked Chinese protests against Japanese goods and businesses last year.
China’s “exporters are suffering,” said Steve Wang, Hong Kong-based head of China research at Reorient Financial Markets Ltd., a Chinese government-backed investment bank. “The room may be limited for further appreciation of the yuan, which is likely to reach a ceiling at six.” The currency was at 6.1489 per dollar as of 4:01 p.m. in Shanghai.
Japan today reported that gross domestic product rose an annualized 3.5 percent in the first quarter. China’s economy unexpectedly slowed, with analysts cutting forecasts for full-year growth.
The yuan gained 1 percent against the dollar in the past three months, the second-best performer among Asia’s 11 most-traded currencies tracked by Bloomberg. The yen slid more than 8 percent. Chinese exports to Japan fell 1.2 percent last month from a year earlier, the commerce ministry said.
“Yuan appreciation has very big impact on Chinese foreign trade firms,” Shen said. “We can’t be optimistic about trade at all.”
A survey by the ministry found that the profit margins of 78 percent of exporters are narrowing, and 73 percent will report flat or lower profits for 2013, Shen said. Exporters at the Canton Trade Fair in April and May didn’t want to accept long-term orders because of concerns that the yuan will gain, he said.
China’s stronger-than-expected export growth in the first four months of the year spurred Bank of America Corp. and Mizuho Securities Co. analysts to argue that the figures were falsely inflated.
Shen said there are “reasonable” and “abnormal” factors underlying the growth, and his ministry is still studying it. Excluding Hong Kong, China’s export growth in the first four months was 8.5 percent, close to China’s full-year target of 8 percent, Shen said.
Australia & New Zealand Banking Group Ltd. (ANZ) said in a May 8 note that “round-tripping” and over-invoicing of trade between Hong Kong and Shenzhen, are fueling China’s export growth. At a briefing last month, the customs agency acknowledged concerns that the data may be overstated, though it said differences with Hong Kong’s numbers stem from statistical methods.
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