China’s exports rose the least in seven months and the customs bureau warned of “severe” challenges as the global economic outlook dims, giving Premier Wen Jiabao’s government less incentive to let the yuan rise.
Exports rose a less-than-forecast 17.1 percent in September from a year earlier, the bureau’s data showed in Beijing. The trade surplus was $14.51 billion, the smallest since May. Growth in shipments to Europe, China’s biggest export market, slumped to 9.8 percent, from 22 percent, amid the sovereign-debt crisis in euro-region nations.
China may move to restrain the yuan, which has gained the most against the dollar among 25 emerging-market currencies in the past four years, even after the U.S. Senate voted this week for legislation aimed at forcing faster appreciation. The risk of a trade slump may also encourage China to refrain from raising interest rates and to add to support for companies after unveiling tax breaks for small businesses yesterday.
“Although Washington is ramping up the pressure on Beijing to move faster on the currency, Chinese officials will be able to cite today’s data as evidence that exporters are already feeling the pinch,” said Brian Jackson, a Hong Kong-based strategist with Royal Bank of Canada. Jackson noted that yuan gains against the euro add to risks for exports to the region.
Yuan Against Euro
The Chinese currency has gained 4.3 percent versus the euro since the start of August. The yuan slipped 0.3 percent to 6.3763 per dollar as of 12:43 p.m. in Shanghai. Stocks in China rose, joining a rally across Asia. The benchmark Shanghai Composite Index was 0.5 percent higher at 2,432.19 at the 11:30 a.m. local-time break.
The U.S. may today report a trade deficit of $45.8 billion for August, up from $44.8 billion in July, according to the median forecast in a Bloomberg News survey.
China’s imports advanced 20.9 percent in September, less than analysts’ 24.2 percent median estimate and a 30 percent gain in August. Export growth compared with a median forecast of 20.5 percent and a rise of 24.5 percent in August.
“The leading indicators from the developed economies indicate that worse will follow” for exports, said Yao Wei, a Hong Kong-based economist at Societe Generale AG.
The yuan’s appreciation has weakened competitiveness and exporters are afraid to accept large or long-term orders, the customs bureau said in a statement. “Serious development problems, high unemployment rates and sliding consumer confidence” in the EU, U.S. and Japan, and slowing growth in emerging economies “present severe challenges,” it said.
“Domestic demand is still quite strong,” said Zhang Zhiwei, a Hong Kong-based economist with Nomura Holdings Inc.
The import slowdown was driven mainly by weakening purchases from companies processing goods for re-export, Zhang said. China’s passenger-car sales rose at a faster pace for a fourth straight month in September, climbing 8.8 percent, the China Association of Automobile Manufacturers said today.
Imports rose to $155.2 billion, just shy of August’s record. Purchases of copper climbed to the highest level in 16 months as lower prices lured traders to place orders and replenish stocks.
A reduction in duties on some commodities including refined oil starting July 1 led to a 77 percent jump in imports of such goods in the third quarter from a year earlier, the customs bureau said.
The agency estimates full-year export growth will drop to 18 percent from 31 percent in 2010 and expansion in imports will ease to 21 percent from 39 percent. The trade surplus may narrow to about $170 billion from $183 billion last year, Lu Peijun, vice minister at the customs bureau, said. The excess has dropped every year from a record $295 billion in 2008.
“A major shift in policy is unlikely until early December when the central economic work conference is usually held, although the government is already taking some selective easing measures such as the support extended to small firms,” said Chang Jian, an economist at Barclays Capital in Hong Kong who formerly worked for the Hong Kong Monetary Authority and the World Bank.
The government will provide financial support and preferential tax policies for small companies, the State Council said in a statement yesterday, after a meeting where Premier Wen Jiabao presided. The government will be more tolerant of bad loan ratios for small-company loans, the cabinet said.
The collapse of some manufacturers in Wenzhou city in Zhejiang province has highlighted concern that small companies are facing a credit squeeze after monetary tightening.
In Guangdong, another export hub, footwear maker Wing Kwai Trading Co. says it faces rising wage costs, weaker demand and a stronger yuan.
“Demand for our products has been falling because of the economic outlook,” said company owner David Huang before today’s trade data. “The yuan keeps rising and workers are asking for higher and higher wages.”
China’s foreign ministry warned U.S. lawmakers yesterday that the proposed bill allowing penalties against countries that undervalue their currencies would damage bilateral trade and risks undermining the global recovery. The legislation will now move to the Republican-controlled House of Representatives.
“Trade tensions, at least the rhetoric, are likely to heat up between China and the U.S. as the global outlook deteriorates,” Barclays’ Chang said.
A stronger yuan would help China curb inflation and reduce the trade surplus, she said. A government report tomorrow may show consumer prices climbed 6.1 percent last month from a year earlier, according to a Bloomberg News survey of analysts. That compares with the government’s full-year target of 4 percent.