Currency rise may peril profit at small exporters
By Zhang Fengming |
April 3, 2010, Saturday
|
Print Edition
Print Edition
A 3 percent appreciation of the yuan will reportedly shrink profits by up to 50 percent at machinery and electronics makers, according to a stress test whose results did not come as a surprise to industry watchers.
Small and medium-sized exporters with poor pricing power due to lack of competitive core technology are most exposed to an erosion in profit as a result of a yuan appreciation, Economic Information Daily, a Xinhua news agency affiliate, reported yesterday, quoting the stress test results.
China conducted stress tests in textile and other labor-intensive exporters to evaluate the impact of a yuan rise.
The tests indicated that many industries, including home appliance, light industry and textile, can't bear an immediate and sharp appreciation in the yuan's value.
The China Chamber of Commerce for Import and Export Machinery and Electronics Products estimated that makers of home appliances, autos and cell phones will face a profit plunge of 30 to 50 percent if the yuan rises by 3 percent.
The China Chamber of Commerce for Import and Export of Textiles predicted a 1 percent yuan rise will erode profit by 1 percent.
Industry watchers were not surprised by the stress test results as some Chinese exporters were vulnerable due to their poor pricing power and low profit margin.
The yuan has gained 20 percent since China dropped the peg to the greenback and shifted to a basket of currencies, including the euro, the yen and the won in July 2005. The yuan has been flat against the US dollar at around 6.83 since the middle of 2008 as the appreciation was put on hold amid the global financial fallout.
China has repeatedly rebuffed calls by the United States for the yuan to appreciate.
Some economists said the yuan's rise can help improve the export structure as it expels low value-added, low margin players and encourages a shift to more value-added business.
Others, including Industrial Bank Senior Economist Lu Zhengwei, warned "an over-paced and over-loaded appreciation will not help improve the export structure but harm the industry as the Japanese experience showed."
Lu said the yuan may appreciate as early as May.
Small and medium-sized exporters with poor pricing power due to lack of competitive core technology are most exposed to an erosion in profit as a result of a yuan appreciation, Economic Information Daily, a Xinhua news agency affiliate, reported yesterday, quoting the stress test results.
China conducted stress tests in textile and other labor-intensive exporters to evaluate the impact of a yuan rise.
The tests indicated that many industries, including home appliance, light industry and textile, can't bear an immediate and sharp appreciation in the yuan's value.
The China Chamber of Commerce for Import and Export Machinery and Electronics Products estimated that makers of home appliances, autos and cell phones will face a profit plunge of 30 to 50 percent if the yuan rises by 3 percent.
The China Chamber of Commerce for Import and Export of Textiles predicted a 1 percent yuan rise will erode profit by 1 percent.
Industry watchers were not surprised by the stress test results as some Chinese exporters were vulnerable due to their poor pricing power and low profit margin.
The yuan has gained 20 percent since China dropped the peg to the greenback and shifted to a basket of currencies, including the euro, the yen and the won in July 2005. The yuan has been flat against the US dollar at around 6.83 since the middle of 2008 as the appreciation was put on hold amid the global financial fallout.
China has repeatedly rebuffed calls by the United States for the yuan to appreciate.
Some economists said the yuan's rise can help improve the export structure as it expels low value-added, low margin players and encourages a shift to more value-added business.
Others, including Industrial Bank Senior Economist Lu Zhengwei, warned "an over-paced and over-loaded appreciation will not help improve the export structure but harm the industry as the Japanese experience showed."
Lu said the yuan may appreciate as early as May.
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