Yuan Advance to Slow on Cooling Growth, BlackRock’s Urwin Says

By Patricia Lui and Lilian Karunungan

Jan. 19 (Bloomberg) -- China will slow or stop gains in the yuan to support exports as economic growth cools to the slowest pace in seven years, BlackRock Inc. said.

The central bank, which has stalled yuan gains since mid- 2008, may prevent a further advance after exports last month slumped the most in almost a decade, Richard Urwin, BlackRock’s London-based head of allocation, said in an interview. The largest publicly traded U.S. asset manager, which has $1.26 trillion in funds, may add to its local equity holdings as China’s fiscal and monetary policies put the economy on a recovery path.

“Given the authorities’ increasing desire to stimulate economic growth, we’re likely to see a slower appreciation or maybe no appreciation against the dollar for a period,” Urwin said in Singapore on Jan. 16. “At current levels, it still gives Chinese producers competitive advantage globally.”

The currency traded at 6.8367 per dollar as of 11:41 a.m. in Shanghai, compared with 6.8374 on Jan. 16, according to the China Foreign Exchange Trade System. The yuan strengthened 6.6 percent in the first half of last year, extending its gains to 21 percent since a dollar-peg ended in July 2005.

Gross domestic product grew 6.8 percent last quarter from a year earlier, compared with 9 percent in the previous three months, a Bloomberg News survey showed. The government may report the data this week.

Waning export demand has led to protests by fired factory employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong, and an estimated urban unemployment rate of more than 9 percent.

Stimulus Spending

Premier Wen Jiabao pledged Jan. 11 to add to the nation’s 4 trillion yuan ($585 billion) stimulus package to create jobs and avoid social instability. Exports grew 17.2 percent for all of 2008, down from 25.7 percent in 2007.

“At the moment, we’re positive on China, we have money in China and that is the reason we are positive on Asia ex-Japan,” he said. “China is a big chunk of Asia ex-Japan, so in terms of broad regional themes, this is an area we like.”

The benchmark CSI 300 Index of stocks has climbed 12 percent this year, after slumping 66 percent in 2008 as investors fled emerging-market assets amid the credit-market squeeze and the threat of a global recession.

The Asian region will likely benefit from China’s stimulus measures, Urwin said, adding that their economies and banking sectors are also relatively stronger than their U.S, U.K and Europe counterparts. “The Asian decoupling theme may return sometime later in the year,” he said.

Global Recession

The International Monetary Fund said on Nov. 6 that emerging and developing countries will expand 5.1 percent in 2009, surpassing global economic growth of 2.2 percent. The IMF has said growth of 3 percent or less is “equivalent to a global recession.”

Even so, Asian currencies may have little room for appreciation this year as risk aversion continues amid the global recession, Urwin said.

“In general, emerging-market currencies are very much reflecting shifting global risk appetite,” he said. “Until we see global risk appetite resume strongly, it will be a challenging environment.”

Seven of Asia’s 10 most-active currencies outside Japan fell against the dollar last year. South Korea’s won was the biggest loser, followed by India’s rupee and the Indonesian rupiah. They slumped 26 percent, 19 percent and 15.5 percent respectively.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.