China recovery gathers pace as export slump eases

[December 11, 2009]  SHANGHAI (AP) -- China's exports are making a comeback after a jarring slump threw millions out of work, a sign of improving global demand that along with a torrent of stimulus money is accelerating recovery in the world's No. 3 economy.

The trade figures for November were the best in a year with exports falling just 1.2 percent from the same month of 2008. Retail sales, factory output and investment also saw robust growth last month. The figures released Friday did show a return to inflation, though only at the modest level of 0.6 percent, after nine months of falling prices.

Asian markets rallied as investors were heartened by the signs of rising global demand that could lift other trade-reliant economies in the region as consumers in the U.S. and elsewhere begin spending more after months of holding back.

A sustained improvement in exports could add to pressure from the U.S., Europe and other trading partners for Beijing to let China's currency, the yuan, rise. But officials have repeatedly shown they're in no hurry to alter the policy of a stable currency -- in effect keeping the yuan weak to boost the competitiveness of China's exports.

The 1.2 percent fall in exports was the smallest decline since they collapsed in November 2008 -- an upheaval that forced thousands of factories in China's southern manufacturing heartland to close and cost millions of jobs.

Imports jumped, rising 26.7 percent over the same month last year and narrowing the trade surplus to $19.9 billion in November from $24 billion in October, customs data showed.

Exports had fallen 13.8 percent in October and by much more in previous months.

"The decline in exports narrowed greatly in November because external demand is improving," said Sheng Laiyun, spokesman of the National Statistics Bureau, who briefed reporters in Beijing.

Beijing has vowed to continue to promote exports while also working to boost imports and fortify domestic demand that China's leaders acknowledge is crucial for sustainable growth in the long-term.

Those aims were apparent in measures announced earlier this week following a top-level economic planning meeting in Beijing that pledged to keep stimulus and relaxed credit policies in place to ensure the recovery stays on track.

China's economy expanded 8.9 percent from a year earlier in the third quarter of this year, after seeing growth dip to 6.1 percent in the first quarter due largely to plunging demand for exports. Most of that growth has been attributed to the impact of a massive lending spree backing the government's 4 trillion yuan ($586 billion) stimulus package.

The lavish spending spurred a 32.1 percent increase in investment in factories and other construction in the first 11 months of the year, to 16.86 trillion yuan ($2.47 trillion), the statistics bureau reported.

Retail sales, which are playing an increasingly important role in driving growth, climbed 15.8 percent in November from a year earlier, to 1.13 trillion yuan ($166 billion).

EU and U.S. officials, their own economies still far feebler, say China's recovery means its manufacturers are in good enough shape for Beijing to relax the defacto link between the renminbi -- as the yuan is also known -- and the U.S. dollar.

Premier Wen Jiabao and other leaders have rejected such appeals.

"As you can see, the stable renminbi exchange rate has boosted the competitiveness of China's trading sector in the current global trading environment," said Li Xianrong, an economist with the China Academy of Social Sciences.

Keeping the yuan's value steady against the weakening U.S. dollar has pushed China's foreign exchange reserves to record levels, while constraining its monetary policy options. It also has put pressure on the euro and Asian currencies.

Jing Ulrich, head of China equities at J.P. Morgan, says rising inflation will make it more likely that China will let the renminbi appreciate against the U.S. dollar after holding its value steady at about 6.83 per dollar for more than a year, but only gradually.

"The export sector's relatively thin profit margins and low pricing power mean that RMB (renminbi) appreciation would further squeeze margins and increase risks of unemployment in the sector," she said in a note to clients, forecasting a rise to 6.5 yuan to the dollar by the end of 2010.

Rising costs for food and energy helped push prices higher, but China is also seeing strong growth in property and share prices. Shanghai's main stock benchmark is up nearly 80 percent this year, while housing prices rose 5.7 percent year-on-year in November to a 16-month high. New construction rocketed almost 200 percent, while sales nearly doubled.

"The year-on-year growth of new property construction looks like a straight line shooting up to the sky," said UBS economist Tao Wang.

Sheng, of the statistics bureau, shrugged off rising prices, saying "currently there is still no pressure from inflation." To counter speculation in the property sector, however, this week the government reimposed a 5.5 percent tax on sales of homes bought less than five years earlier.

[Associated Press; By ELAINE KURTENBACH]

Associated Press researchers Ji Chen in Shanghai and Bonnie Cao in Beijing contributed to this report.

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