Despite the high growth in exports during June, the overall prospects for 2010 still look bleak as the European debt woes and the monetary tightening policies will crimp demand for the nation's goods, the Ministry of Commerce said on Tuesday.

The ministry urged the government not to tweak the export policies further, as changes will further hamper export prospects.

Exports for June jumped 43.9 percent to US$137.4 billion, the highest since July 2008.

The growth momentum cannot be sustained and prospects for exports are not so hopeful in the months ahead, said ministry spokesman Yao Jian.

The uncertain global economic recovery and domestic challenges like rising labor costs and growing trade friction will make the situation more complicated for exporters, he said.

European debt woes worsened in April this year after Greece had to be bailed out of a debt crisis by other nations. At that time there were also apprehensions that the debt contagion would soon spread to other European nations.

Consequently most of the nations in the region like Spain, Italy and Germany decided to reduce spending. The measures may queer the pitch for exporters, as outside of the US these are the major export destinations for Chinese exporters.

Apart from Europe, exporters are also facing problems in emerging markets like Brazil and India as they are also contemplating austerity measures.

The Brazilian central bank had hiked its benchmark lending rate to 10.25 percent from a record low of 8.75 percent in April.

Since March, India has tweaked its interest rate three times, and the next monetary policy decision is likely on July 27.

According to the ministry, during the first half of this year, China's shipments to emerging markets like India, Russia, Brazil and South Africa grew 58.1 percent to US$45.36 billion, 23 percentage points higher than the export growth for the same period.

"It's not all about foreign demand. There are some domestic factors also that makes it hard for exporters," said Yao.

Last month, the government said it was ending the yuan's peg to the dollar as part of its currency reforms.

Between January to June this year, raw material costs have risen by 20 to 30 percent from a year earlier. Coupled with this there has also been a steady clamor for increased wages.

The Ministry of Industry and Information Technology (MIIT) on Tuesday said domestic companies are facing pressure from rising labor and raw material costs.

But the pressures will not hamper economic growth and industrial output will exceed the target of 11 percent for the whole year, although it may see a dip in the second half, said Zhu Hongren, chief engineer of the ministry.

(China Daily July 21, 2010)