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A rising yuan won't lift all boats
Source: Xinhua |
October 13, 2010, Wednesday
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ZHOU Xiaonan is increasingly stressed, counting the shrinking profits of his company's exports as the Chinese currency rises.
"The profit loss was 5 US cents per garment at first, then it widened to 10 cents," said Zhou, deputy general manager of Huamei Thread Co Ltd, a Sino-US joint venture based in Ningbo city, east China's Zhejiang Province. "This is my toughest year since I began in the export business a long time ago, even tougher than last year when the world economy was at its bottom during the global financial crisis."
After racking his brains to deal with rising labor and raw materials costs, Zhou has a new challenge - the rising yuan. The Chinese currency has strengthened by about 2 percent against the US dollar since the People's Bank of China (PBOC)'s pledge on June 19 to increase exchange rate flexibility.
Like other Chinese exporters, Zhou fears the yuan's appreciation will incur losses in foreign exchange settlements with foreign buyers. A Xinhua survey in September in the provinces of Guangdong, Zhejiang, Jiangsu and Shandong, China's leading exporting areas, found that a sharp increase in the yuan's value could send many Chinese exporters to the wall.
Liang Yaowen, director of the Foreign Trade and Economic Cooperation Department of the Guangdong Provincial government, said China's exporters were still far from recovering from the global economic downturn.
An average 20-percent increase in employees' wages, more costs in power consumption and a doubling of shipping costs had slashed profit margins of exporters to a very low level. "If we bow to US government pressure and let the yuan rise further and faster, the outlook for those companies will become worse," he said.
The US House of Representatives approved a bill on September 29 allowing the Commerce Department to impose tariffs on imports from countries with "fundamentally undervalued" currencies. US Senate approval and the president's signature is also required for it to become law.
However, a stronger yuan is likely to be the last straw for many Chinese exporters. A survey by the Guangdong Provincial government showed the province's exporting firms were struggling as production costs - particularly labor - rose sharply this year.
Xinhua's survey last month found the profit margin for labor-intensive export industries such as textiles, garments, footwear, toys and auto parts has dropped below 5 percent this year, leaving little room for those companies to afford a stronger yuan.
"The profit loss was 5 US cents per garment at first, then it widened to 10 cents," said Zhou, deputy general manager of Huamei Thread Co Ltd, a Sino-US joint venture based in Ningbo city, east China's Zhejiang Province. "This is my toughest year since I began in the export business a long time ago, even tougher than last year when the world economy was at its bottom during the global financial crisis."
After racking his brains to deal with rising labor and raw materials costs, Zhou has a new challenge - the rising yuan. The Chinese currency has strengthened by about 2 percent against the US dollar since the People's Bank of China (PBOC)'s pledge on June 19 to increase exchange rate flexibility.
Like other Chinese exporters, Zhou fears the yuan's appreciation will incur losses in foreign exchange settlements with foreign buyers. A Xinhua survey in September in the provinces of Guangdong, Zhejiang, Jiangsu and Shandong, China's leading exporting areas, found that a sharp increase in the yuan's value could send many Chinese exporters to the wall.
Liang Yaowen, director of the Foreign Trade and Economic Cooperation Department of the Guangdong Provincial government, said China's exporters were still far from recovering from the global economic downturn.
An average 20-percent increase in employees' wages, more costs in power consumption and a doubling of shipping costs had slashed profit margins of exporters to a very low level. "If we bow to US government pressure and let the yuan rise further and faster, the outlook for those companies will become worse," he said.
The US House of Representatives approved a bill on September 29 allowing the Commerce Department to impose tariffs on imports from countries with "fundamentally undervalued" currencies. US Senate approval and the president's signature is also required for it to become law.
However, a stronger yuan is likely to be the last straw for many Chinese exporters. A survey by the Guangdong Provincial government showed the province's exporting firms were struggling as production costs - particularly labor - rose sharply this year.
Xinhua's survey last month found the profit margin for labor-intensive export industries such as textiles, garments, footwear, toys and auto parts has dropped below 5 percent this year, leaving little room for those companies to afford a stronger yuan.
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