Exporters suffer from yuan rise

(AP)
Updated: 2007-01-14 09:17

Many manufacturers assemble imported components, supplying little more than labor and adding just 20-30 percent of the value of air-conditioners, sports equipment and other goods, experts say.

And some Chinese industries are enjoying a windfall.

Oil refiners are racking up fat profits on lower costs for imported crude. Airlines are seeing the cost of Boeing Co. and Airbus Industrie jetliners fall. Banks are richer as the value of their Chinese assets climbs in dollar terms. Companies that invest abroad are paying less for stocks and other assets.

But costs are rising for those that use Chinese materials.

The Anji Henglin Furniture Co. is paying more for wood, plastic and other materials, said Mei Yimin, the director of its foreign trade department. The company, in the southeastern province of Zhejiang, says it was China's 11th-biggest furniture exporter last year with sales of US$26 million.

"It is even worse that the appreciation is taking place bit by bit, which makes it more difficult to negotiate with distributors," Mei said. "If it happened by a big margin overnight, they would have no option but to share the loss."

Galanz Group Co., which exported US$700 million worth of microwave ovens and other appliances last year, renegotiated contracts with U.S. retailers, which agreed to share exchange rate losses, said Liu Guizhong, deputy general manager of Galanz's foreign trade unit.

"If they didn't agree, we would have shortened the contract from one year to half a year or three months to avoid the risk," Liu said.

Beijing embarked on exchange-rate reform as part of a long-term effort to make its financial system more flexible. The government says it will eventually let the yuan trade freely on world markets and will end barriers to the movement of money in and out of the country.

The surge in export revenues has strained China's ability to contain inflation without letting the yuan rise. The central bank drains billions of dollars a month from the economy by selling bonds and has piled up reserves estimated to exceed US$1 trillion .

A top Chinese economic official, Vice Premier Wu Yi, told visiting U.S. Treasury Secretary Henry Paulson in December that Beijing would continue exchange rate reforms but at its own pace.

Beijing is trying to reduce its dependence on low-profit exports by encouraging China's own consumers to spend more and prodding companies to invest in creating new technologies and brand names.

VTech Holdings Ltd., a Hong Kong company, has a workforce of 20,000 in China making educational toys for sale in the United States.

It responded to the yuan's rise by boosting spending to develop new toys, said a manager in its finance department who would give only his surname, Yao.

"We are trying to lead the market," Yao said, "so that we can sell at higher prices."


 12


Top China News  
Today's Top News  
Most Commented/Read Stories in 48 Hours