Exchange rate largest concern for Chinese exporters

15:19, April 17, 2010      

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Wan Linzhong runs a factory in eastern China’s Jiangsu Province, exporting electronic LED signs, light boxes and neon signs to Europe and United States. His major concern is a stronger yuan, or China’s currency renminbi.

Like most exporters attending the 107th China Export and Import Trade Fair, or Canton Fair in the southern city of Guangzhou, Wan worried that a stronger yuan would further squeeze the already thin profit margin in his company and make the products more expensive and thus less competitive.

"If the exchange rate of yuan increase one percent, our profits will drop more than 10 percent," said Wan, manager of the Yancheng Novelty Electronic Co., Ltd.

After China overtakes Germany to be the world’s largest exporter, the country is under increasing criticism that it keeps the yuan undervalued to benefit domestic exporters. Some U.S. lawmakers even proposed legislation to impose tariffs on Chinese goods unless China allowed the yuan to climb.

The central parity rate of yuan was 6.8261 per U.S. dollar Friday, according to the China Foreign Exchange Trading System. The currency is allowed to float on the interbank market within a daily limit of 0.5-percent each way of the central parity rate.

After China unpegged the yuan from the U.S. dollar more than four years ago and allowed it to fluctuate against a basket of currencies, the currency gained 21 percent before stabilizing against the dollar in the middle of 2008.

Wan said if the yuan did appreciate, he would have to cut exports and focus more on domestic market. He was now in talks with some local governments for road lamp projects.

However, many exporters might not be lucky as Wan to transfer to domestic market as their products were not fit for the market. The Jiaxing Dibeisi Electro-Acoustics Co. was one of them.

Zhu Guoqiang, the company’s sales manager, said his company might have to cut production or even halt production if the yuan strengthened.

"If the yuan has to appreciate, I hope it will not rise too fast," Zhu said.

He said the company, which has 300 staff, has seen an uptick in orders this year and was still recovering from a heavy blow in 2008 when orders plunged.

"We are working on technological innovation in an effort to cut costs, but I don’t think it will help a lot if the yuan exchange rate increases too much," he said, adding that costs of raw material and labor forces were also climbing.

Ramesh Kalachand, chairman and managing director of J Kalachand Co., one of the leading importers of Mauritius, said if the yuan exchange rate increased by two or three percent, Chinese products would still be competitive.

Renato Castro, executive director at the Asian Import and Export Management of the San Paulo-headquartered Baumann Group, said if the yuan appreciated too much, his company would stop purchasing from the Chinese market and shift to other countries for alternative, such as Vietnam, Cambodia and India.

However, the group would continue to stay in China because "if the country will not be a good place to purchase, it surely will be a good place to sell", he said.

Renato Castro said his company started to attend the Canton Fair, China’s largest trade fair since 2006. The company planned to buy items ranging from home appliances, trucks to motor cycles from China this year.

"The quality of Chinese products is good, but their competitiveness is the attractive price," he said.

Source: Xinhua


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