WASHINGTON - China's rising wages and inflation will soon make its exports too expensive to compete with low-cost manufacturers, according to a group representing US companies with operations in the world's second-largest economy.

"China's competitiveness in terms of wage rates will evaporate," Christian Murck, president of the American Chamber of Commerce in Beijing, said on Monday.

Factories are "being squeezed very, very severely by rising wages", he said.

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Murck said the yuan is likely to continue its steady appreciation against the dollar because Chinese policymakers want to curb inflation and limit their accumulation of US Treasury bonds. A rising currency also makes exports more expensive.

China's currency strengthened to 6.49 a dollar on April 29, the first time it exceeded 6.50 a dollar since 1993.

Consumer prices in Asia's biggest economy rose 5.4 percent from a year earlier in March, exceeding the government's 4 percent goal for this year.

Murck's group, representing US companies with operations in China such as Intel Corp, Wal-Mart Stores Inc and Boeing Co, is in Washington this week discussing ways that the administration of US President Barack Obama can confront a growing range of commercial challenges in China.

Chinese efforts to develop "national champions" in high-technology industries reflects an awareness that its supply of low-cost labor from provinces is drying up as its population ages, said James McGregor, senior counselor at APCO Worldwide.

"They are using the power of their market," he said.

Wage increases in China and the appreciation of the yuan have reduced the profitability of small industrial companies in the southern province of Guangdong, the National Bureau of Statistics in Beijing said on March 15.

The profit margin for small-scale industrial companies fell to 3.9 percent last year, a drop of 0.2 percentage points from a year earlier, the nation's statistics bureau said on its website.

Labor shortages in manufacturing hubs on China's east coast are persisting and spreading to central and western regions as economic growth spurs demand for workers and population growth in rural areas slows, Yin Weimin, minister of human resources and social security, said in Beijing on March 8.

Bloomberg News