China exporters suffer as currency rises

Updated: 2007-01-15 11:04

Galanz Group Co., which exported $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 $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 work force of 20,000 in the Chinese mainland 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."


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