By ALEX FRANGOS
More than a year after China started letting its currency climb against the dollar, the nation is a bigger force in exports than ever, adding to its dominance as a trading power and complicating efforts by other nations to wrest away manufacturing jobs.
The latest evidence of China's prowess came Sunday, when it reported that exports hit $162 billion in June and $874 billion in the first half of the year, both records, up nearly 20% from the year-earlier periods. The growth, which came despite economic difficulties in key markets like the U.S. and Europe and supply-chain disruptions in Japan, is bound to boost pressure on Beijing from the U.S. and others to let the yuan appreciate further and faster.
China's closely watched trade surplus widened to more than $22 billion in June, from $13 billion in May, indicating a lack of progress toward the Group of 20 nations' goal of rebalancing global growth. China's trade surplus for the year's first half, though, was down 18%, reflecting its increased buying of raw materials for infrastructure projects, which sent the value of imports up even faster than exports.
The export performance comes despite rising costs for Chinese manufacturers. They are dealing with the highest inflation in three years, government-directed wage increases and a yuan that has strengthened more than 5.5% against the dollar in the roughly 13 months since China began letting it climb—although the yuan has weakened against other major currencies in that period.
Indeed, since China began to let the yuan rise against the dollar in June 2010, China has gained market share in exports to the world's largest markets, according to information compiled by Global Trade Information Services, a Columbia, S.C., data provider.
China's critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters. The U.S., and some Chinese economists, too, say it also holds back the transformation of China's economy to one reliant more on domestic demand and less on international trade.
Treasury Secretary Timothy Geithner has publicly urged China to pick up the pace of its currency appreciation. Some U.S. lawmakers have proposed taking a more punitive approach to nations believed to be artificially depressing their currencies. Many U.S. business groups oppose such an approach with China, fearing it could prompt a trade war.
How China adapts to rising costs at home has major implications for the rest of the world. Nations in Asia, Latin America and Africa are angling to take advantage by capturing low-wage jobs from China.
There is evidence that small gains are being made at China's expense in areas such as apparel and footwear. But China is retaining its edge because of the strength of its supply chain, and because Chinese companies also are moving production to cheaper domestic labor markets, retooling factories with automation and expanding into higher-value goods such as electronics.
Consider the toy industry. Chinese workers made 64% of all toys exported globally in 2010, according to Global Trade Information Services, and China has the largest and most diverse network of toy-part and toy-packaging suppliers anywhere.
Rising costs in China prompted Ronnen Harary, chairman and co-founder of Spin Master Ltd., one of the largest toy sellers in North America, to set a goal of moving 20% of its production outside China. It now makes nearly all its toys there.
After looking around Southeast Asia, he is leaning toward neighboring Vietnam, where officials are "hungry and motivated" for the business, "like China was 15 years ago," he said.
But the cost advantage looks fleeting. He figures Vietnam's wages, currently only 10% below China's, will catch up in a few years. And moving means setting up offices in Vietnam, trucking in supplies from China and dealing with Vietnam's less-developed roads, ports and warehouses.
During the 12 months through April, the latest numbers available, 18.9% of what the U.S. imported, by value, came from China, up from 18.5% in the year-earlier period, according to Global Trade Information Services. In 2007, before the financial crisis sent global trade into a tailspin, 16.4% of U.S. imports came from China.
In the European Union, China accounted for 18.4% of imports, by value, in the year ending April, up from 17.7% in the prior 12-month period and 16% in 2007.
The yuan's 11% drop against the euro since last June, which makes Chinese goods cheaper in the euro zone, is helping China to beat the likes of Italy and Spain in exporting to a variety of markets, including to other European nations. Exporters in European economics such as Greece, Spain, Italy and Portugal, where wages are relatively high and productivity growth has been slow, are particularly vulnerable to Chinese exports.
Measured against all the currencies of China's biggest trading partners, the yuan fell nearly 5% in the 12 months through May, says the Bank of International Settlements.
China's export dominance, especially in labor-intensive areas, is likely to erode over time. China's policy makers hope that pay increases for Chinese workers and a strengthening currency eventually will help steer the economy toward producing more for domestic consumers and away from its reliance on exports.
But economists say such a shift could take a generation.
A Chinese government official on Sunday played down the significance of the strong export numbers. Economic sluggishness in key export markets "poses severe challenges to keeping China's export growth stable," said Zheng Yuesheng, director of the statistics department of China's customs agency.
China's exporters are adapting to rising costs. Spin Master's Chinese suppliers are automating some processes that used to be done by hand and have moved some production to cheaper labor markets inside China.
China has substantial market-share leads in a range of products, from clothing to footwear to furniture.
"There's a lot of persistence in these things," says Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington. "Just because prices change by 5%, you're not going to get importers and suppliers to switch destinations."—Liu Li and Ian Talley contributed to this article.
Write to Alex Frangos at email@example.com