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Firms need multiple solutions to tackle stronger yuan

(Xinhua)
Updated: 2008-04-12 11:52

Chinese businesses should resort to multiple methods to ease pressures from the faster appreciation of the local currency, the yuan, against the US dollar, experts said.

Related readings:  Yuan breaks 7 against greenback  China urges US to lift export restrictions, reduce trade barriers  Declining export growth to slow China's 2008 GDP increase  Time to toy with a new business model

To maintain a competitive edge, the companies needed to diversify export destinations as the yuan gained against the greenback while weakened against other major currencies, such as the euro and yen, said Yu Run, a Nanjing University finance professor.

The yuan, or renminbi (RMB), has gained 4.5 percent so far this year, compared with 6.9 percent for all of 2007. It breached the 7 yuan mark for the first time on Thursday since it was de-pegged from the greenback in July 2005 when the central parity rate was set at 6.9920 yuan against the dollar.

The companies could also sell more products at home as Chinese residents have recorded high income growth over the past couple of years, he added.

China-made goods were becoming less competitive with the faster appreciation of the yuan against the dollar, reducing US orders and profit margins for local firms.

An increasingly stronger yuan would also reduce exports and slow economic growth, said Cai Ruhai, a Central University of Finance and Economics professor. Exports, together with investment and consumption, have been hailed as the three engines of the country's development.

Many Western politicians and business people have accused China of keeping the exchange rate of the yuan artificially low to give domestic exporters an unfair advantage.

Zhang Erzhen, a Nanjing University trade professor, added the workshops of the world should boost technological innovation and speed up industry upgrades to produce more high-end products to raise profit margins.

Many experts have blamed the fast appreciation of the yuan for the shut downs and transfer of low-end manufacturers in the Pearl River Delta, China's major manufacturing base, to inland regions and bordering countries such as Vietnam, where production costs are cheaper.

Experts also said companies should learn to effectively tackle the risks brought about by the variation in exchange rates as it could tremendously affect corporate profits.

Many textile makers, the most vulnerable to a stronger yuan, were turning to non-US dollar currencies in pricing and settlement to offset rising losses from the weakening dollar, according to a survey by webtextiles.com, a major Chinese textile information website.