CHINA, Bloomberg

China's Export Growth Slows, Easing Pressure on Yuan (Update4)

By Nipa Piboontanasawat and Li Yanping

May 9 (Bloomberg) -- China's export growth cooled in April and the trade surplus was little changed as economies around the world weakened, giving the government room to maintain a slower pace of yuan gains.

Overseas sales rose about 21.8 percent from a year earlier, after gaining 30.6 percent in March, according to figures derived from Ministry of Commerce data. The trade surplus was about $16.8 billion compared with $16.7 billion a year earlier.

Central bank Governor Zhou Xiaochuan said on May 4 that weaker export growth has been a factor in the yuan's failure to appreciate versus the dollar after a 4.2 percent jump in the first quarter. Smaller gains in shipments reduce the risk that inflows of cash from overseas sales will fuel 11-year high inflation and overheat the world's fastest-growing major economy.

``Exports will slow further in the second half as the weaker demand in the U.S. and other markets becomes more pronounced,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``China won't want the yuan to appreciate too fast for this reason.''

The trade surplus was more than the $15.5 billion median forecast of 19 economists in a Bloomberg News survey. Economists expected exports to rise 20.3 percent. The gain in overseas shipments compares with the 21.4 percent pace in the first quarter and the 26 percent increase for all of last year.

Import Growth

Imports grew about 26.1 percent in April from a year earlier after gaining 24.6 in March, the calculations showed. The increase partly reflects rising commodity prices.

The yuan gained 0.2 percent to 6.9918 as of the 5:30 p.m. close of trading in Shanghai.

The world's fourth-biggest economy expanded 10.6 percent in the first quarter from a year earlier and inflation accelerated to 8 percent, the fastest pace since 1996. The yuan had its biggest gain since a fixed-exchange rate ended in 2005.

China's currency has climbed 18 percent versus the dollar since the peg to the U.S. currency was scrapped, making the nation's products more expensive in overseas markets and cutting import costs. Since April, it has gained only 0.3 percent.

U.S. Treasury Undersecretary David McCormick urged China to maintain an ``accelerated'' pace of yuan appreciation in a speech today in Shanghai.

Global Slowdown

Growth in shipments from China to the U.S. has cooled this year as a housing slump threatens to trigger a recession in the world's biggest economy. A weaker global expansion has dimmed the outlook for the rest of the year.

Export growth ``will continue to trend down in months to come as the global economic downturn unfolds,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``It could even fall below 10 percent in the fourth quarter.''

Inflation, driven by food costs, climbed to an 11-year high of 8.7 percent in February, more than the central bank's target for the year of 4.8 percent. Consumer prices rose 8.2 percent in April, according to a Bloomberg News survey of economists. That number will be released on May 12.

Producer prices rose 8.1 percent in April, the fastest pace in more than three years, the statistics bureau said today.

China will maintain a tight monetary policy to prevent economic overheating, Vice Premier Wang Qishan told a financial conference in Shanghai today.

`Facing Challenges'

``China's economy is still facing challenges this year including high inflation, investment growth that hasn't yet come down to a normal level and the global economic slowdown,'' Wang said.

The Ministry of Commerce released data for shipments of mechanical and electrical products for the first four months on a ministry Web site today. It gave the value of exports of those products, $251.3 billion, and said they represented 59.2 percent of total exports. It also gave the value for imports, $173.3 billion, said they were 47.3 percent of total imports.

The April trade figures were derived by calculating the total export and import figures for the first four months and subtracting the amounts previously announced for the first quarter.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: May 9, 2008 06:52 EDT