A man counts
100 yuan banknotes in Beijing. Chinese companies that supply U.S.
retailers with billions of dollars worth of toys, furniture and other
goods every year face a painful squeeze as the yuan
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 US
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
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 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,
rise faster. It says the yuan is undervalued, giving Chinese exporters an unfair
price advantage and widening the U.S. trade deficit with China.
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, surpassing the full-year
record of $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.