Chinese Exporters Say Yuan Gain of Maximum 2.3% Is Bearable
March 01, 2010, 11:18 PM EST
March 2 (Bloomberg) -- Exporters at Shanghai’s largest international trade fair said they can bear yuan gains of little more than 2 percent this year, putting pressure on the central bank to limit appreciation sought by the U.S. and Europe.
“A one percentage point gain in the yuan will lead to a one percentage point or more drop in our profit margin, which is only 5 to 7 percent,” said Huang Yifan, president of J & F Garden & Gift Product Manufacturer Co., which sells Mickey Mouse cups to Japan from the southeastern province of Fujian. “It shouldn’t strengthen beyond 6.6 per dollar this year.”
Persuading China to allow the yuan to climb this year is one of U.S. President Barack Obama’s stated goals and a group of 15 senators last week called for stiffer tariffs on imports from Asia’s second-largest economy, saying an undervalued currency gives Chinese exporters an unfair advantage. China’s government is carrying out stress tests to gauge the effect appreciation would have on labor-intensive industries, the 21st Century Business Herald, a Guangzhou-based newspaper, reported Feb. 26.
The People’s Bank of China has kept the yuan at about 6.83 versus the greenback since July 2008, halting a 21 percent three-year advance as a global recession battered exports. Most of China’s foreign trade is denominated in U.S. dollars.
Export Recovery
Overseas sales rose 21 percent in January from a year earlier after climbing in December for the first time in 14 months. A full recovery in China’s foreign trade will take another two to three years, Yao Jian, spokesman for the Ministry of Commerce, said Feb. 25.
“We aren’t optimistic about the domestic environment this year as the cost of raw materials has jumped 30 percent for textile companies,” said Huang Jinlan, chairman of Jiangsu Guotai International Group Co., the third-biggest exporter in the eastern province of Jiangsu. Yuan appreciation should not exceed 1.5 percent, he added.
The yuan’s 12-month non-deliverable forwards traded at 6.6468 per dollar as of 11:30 a.m. in Hong Kong, from 6.6385 yesterday, according to data compiled by Bloomberg. The contracts indicate bets the currency will rise 2.9 percent in a year from the spot rate of 6.8283, having predicted a gain of 0.5 percent six months ago.
Labor Costs
Wage increases are also limiting exporters’ ability to cope with a stronger currency. The average earnings of workers in China’s towns and cities totaled 21,984 yuan ($3,220) in the first nine months of last year, 12 percent higher than in the same period of 2008.
“Only 70 percent of our 300 workers returned after the Lunar New Year holidays and we will have to increase wages by 10 to 15 percent to recruit more people,” said Pan Liyun, a sales executive at Zhejiang Daishan Xingfa Toys Factory, which manufactures Santa Claus toys for Europe and South America. “The yuan’s appreciation should be limited to no more than 1 percent this year as costs rise.”
Chinese migrant workers are expecting an average 14 percent increase in salaries this year, the official Xinhua News Agency said on Feb. 24, citing a report from the Ministry of Human Resources and Social Security. Producer prices climbed 4.3 percent from a year earlier in January, after posting the first increase of 2009 in December, official figures show.
Stability Pledge
The People’s Bank of China reiterated a pledge to keep the currency “basically stable” in its quarterly monetary policy report on Feb. 11. The yuan will climb 4.2 percent this year to 6.55 per dollar, according to the median forecast of analysts in a Bloomberg survey.
“China should wait till next year” to let the yuan strengthen, said Stephen Richardson, managing director of RDK International Merchandising Ltd., who came to the five-day fair from Hong Kong to look for suppliers of kitchenware and household products. “It will definitely hurt Chinese exporters because everywhere else is just starting to recover.”
--Judy Chen. Editors: James Regan, Sandy Hendry
March 01, 2010, 11:18 PM EST
March 2 (Bloomberg) -- Exporters at Shanghai’s largest international trade fair said they can bear yuan gains of little more than 2 percent this year, putting pressure on the central bank to limit appreciation sought by the U.S. and Europe.
“A one percentage point gain in the yuan will lead to a one percentage point or more drop in our profit margin, which is only 5 to 7 percent,” said Huang Yifan, president of J & F Garden & Gift Product Manufacturer Co., which sells Mickey Mouse cups to Japan from the southeastern province of Fujian. “It shouldn’t strengthen beyond 6.6 per dollar this year.”
Persuading China to allow the yuan to climb this year is one of U.S. President Barack Obama’s stated goals and a group of 15 senators last week called for stiffer tariffs on imports from Asia’s second-largest economy, saying an undervalued currency gives Chinese exporters an unfair advantage. China’s government is carrying out stress tests to gauge the effect appreciation would have on labor-intensive industries, the 21st Century Business Herald, a Guangzhou-based newspaper, reported Feb. 26.
The People’s Bank of China has kept the yuan at about 6.83 versus the greenback since July 2008, halting a 21 percent three-year advance as a global recession battered exports. Most of China’s foreign trade is denominated in U.S. dollars.
Export Recovery
Overseas sales rose 21 percent in January from a year earlier after climbing in December for the first time in 14 months. A full recovery in China’s foreign trade will take another two to three years, Yao Jian, spokesman for the Ministry of Commerce, said Feb. 25.
“We aren’t optimistic about the domestic environment this year as the cost of raw materials has jumped 30 percent for textile companies,” said Huang Jinlan, chairman of Jiangsu Guotai International Group Co., the third-biggest exporter in the eastern province of Jiangsu. Yuan appreciation should not exceed 1.5 percent, he added.
The yuan’s 12-month non-deliverable forwards traded at 6.6468 per dollar as of 11:30 a.m. in Hong Kong, from 6.6385 yesterday, according to data compiled by Bloomberg. The contracts indicate bets the currency will rise 2.9 percent in a year from the spot rate of 6.8283, having predicted a gain of 0.5 percent six months ago.
Labor Costs
Wage increases are also limiting exporters’ ability to cope with a stronger currency. The average earnings of workers in China’s towns and cities totaled 21,984 yuan ($3,220) in the first nine months of last year, 12 percent higher than in the same period of 2008.
“Only 70 percent of our 300 workers returned after the Lunar New Year holidays and we will have to increase wages by 10 to 15 percent to recruit more people,” said Pan Liyun, a sales executive at Zhejiang Daishan Xingfa Toys Factory, which manufactures Santa Claus toys for Europe and South America. “The yuan’s appreciation should be limited to no more than 1 percent this year as costs rise.”
Chinese migrant workers are expecting an average 14 percent increase in salaries this year, the official Xinhua News Agency said on Feb. 24, citing a report from the Ministry of Human Resources and Social Security. Producer prices climbed 4.3 percent from a year earlier in January, after posting the first increase of 2009 in December, official figures show.
Stability Pledge
The People’s Bank of China reiterated a pledge to keep the currency “basically stable” in its quarterly monetary policy report on Feb. 11. The yuan will climb 4.2 percent this year to 6.55 per dollar, according to the median forecast of analysts in a Bloomberg survey.
“China should wait till next year” to let the yuan strengthen, said Stephen Richardson, managing director of RDK International Merchandising Ltd., who came to the five-day fair from Hong Kong to look for suppliers of kitchenware and household products. “It will definitely hurt Chinese exporters because everywhere else is just starting to recover.”
--Judy Chen. Editors: James Regan, Sandy Hendry