RMB stress test raises export concerns

09:41, March 19, 2010      

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More than 1,000 Chinese companies are carrying out stress tests to gauge the effect of yuan appreciation, and machinery and electronic industries will be affected most, Zhang Wei, deputy chairman of the China Chamber of International Commerce (CCOIC), said Thursday.

The China Council for the Promotion of International Trade and the CCOIC are con-ducting stress tests on over 1,000 large and small companies in 12 industries, and the results will be released before April 27, serving as a reference for the Fourth Chinese Enterprises Outbound Investment Conference, Zhang said on the sidelines of a press conference held in Beijing.

Initial results from the tests show that the machinery and electronic industries will be most affected by any appreciation of the yuan.

"Machinery and electronic companies currently hold export orders worth $150 billion. If the yuan rises by 3 percent, the industry will lose 30 billion yuan ($4.4 billion)," he said.

Machinery and electronic products export values comprised 58.3 percent of the coun-try's total export values in the first two months of 2010, and they surged 32.2 percent year-on-year to $119 billion, according to figures from the General Administration of Customs.

"The positive figures do not imply a total recovery of foreign demand, as exporters got more short-term orders than long-term ones," Zhang said.

Zhang also said companies in labor-intensive industries such as textiles and furniture manufacturers would face bankruptcy, due to net profit margins as low as 3 percent.

If the yuan appreciates by 1 percent, labor-intensive exporters will lose 1 percent of their profit margin, according to tests conducted by the Ministry of Commerce and the Ministry of Industry and Information Technology last month.

"Even if the yuan has a slight appreciation, it will be a fatal disaster for these companies," he said.
With optimistic export figures released in the past two months, the yuan faces increasing appreciation pressure from the United States.

Zhang said compared with pressure from overseas, the authorities face more domestic pressure from a large number of exporters, which oppose any appreciation of the yuan.

Earlier this month, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products called for a stable yuan exchange rate, or a 1 percent appreciation at most.

Zhang said exporters have already done something to mitigate the potential risks of the yuan's appreciation, such as focusing on exports to South Asia, Latin America and the Middle East.

However, Zhang said the appreciation of the yuan should not be hastened, in order to give companies more time to get prepared.

The chamber also suggests firms invest overseas as a way to relieve the yuan pressure. "We will help more private companies go abroad and do business this year," he said.

Source: Global Times
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