BEIJING _ Dependent on exports to the United States, the Hebei Lihua Hat Co.
saw its profits wiped out as China's currency rose steadily against the dollar
over the past year.
Hebei Lihua, which
sold 90 percent of its 4 million hats to overseas markets last year, fought back
by pushing its 1,800 workers to cut waste and find cheaper raw materials. It
tried to boost revenues by introducing a new waterproof hat.
works in a textile factory in Shanghai on December 10, 2006. Exporters
in China try to spend more in creating new technologies and
brands to shun the effects of currency rise. [Xinhua]
Yet even those efforts might be inadequate, said Wang Zhenhao, the business
manager for Hebei Lihua, located in Baoding, a city southwest of Beijing.
"If the appreciation continues, we will probably lose money," Wang said.
Chinese companies that supply U.S. retailers with billions of dollars (euros)
worth of toys, furniture and other goods every year face a painful squeeze as
the yuan rises, setting off a race to cut costs or find new products that
Americans will pay more for.
Beijing has let the yuan creep up by 6 percent against the dollar since July
2005, easing currency controls as part of long-term efforts to defuse strains
caused by a multibillion-dollar influx of export revenues and investment. The
yuan most recently was trading at about 7.81 to the dollar.
Washington is pressing Beijing to let the yuan, also known as the renminbi,
or people's money, rise faster. It says the yuan is undervalued, giving Chinese
exporters an unfair price advantage and widening the U.S. trade deficit with
The United States says its trade gap with China for the first 11 months of
2006 reached an all-time high of US$213.5 billion (euro165.6 billion),
surpassing the full-year record of US$202 billion set the previous year.
The yuan's rise is small compared with swings in the yen and the euro against
the dollar in recent years. But it is jarring for Chinese exporters, whose
profit margins are thin and whose only competitive edge is low prices. Unlike
Japanese or European companies, they lack technology and brand names that might
keep American customers loyal even as prices rise.
"We do not welcome the renminbi revaluation. It will increase China's export
cost and diminish our competitive strength," said Zhao Hong, a spokesman for the
China Textile Association, an industry group.
Zhao said the group wants members to invest in developing profitable brands
by improving quality.
"We expect to produce more new and improved goods in the future, so that can
lessen side affects caused by the change," he said.
The pain should be concentrated in export industries, with little impact on
U.S. consumers or China's broader economy, because Beijing is restraining the
speed of the yuan's rise, said Andy Rothman, chief China strategist for
investement bank CLSA Asia-Pacific Markets.
"I don't think the impact on most Chinese companies will be that
significant," Rothman said.
Beijing has given no sign it will slow the yuan's rise, despite the possible
threat to employment at a time when the government needs to create jobs for a
growing workforce and millions of people laid off in the overhaul of state
"When they started out on this process, they knew that some people would be
hurt," said Rothman. "If they can see the results are necessary to put the
economy on a sounder footing long-term, then they can deal with the pain."
A more muscular yuan also helps the large segment of China's export
industries that rely on foreign raw materials.