China's adoption in July of a more flexible yuan exchange rate mechanism that caused its currency to appreciate by 2 percent has not had a negative effect on the country's economy. This shows that there is still room for further appreciation of the yuan, an economist said in a report published by Taiwan's Ministry of Economic Affairs last week.
Kao Charng (高長), head of the Hualien-based National Dong Hwa University's College of Humanities and Social Science, analysed the factors affecting the value of the yuan after Beijing in the middle of last month released a report on its currency policy in the third quarter.
The Beijing report cites statistics as showing that China's total domestic output registered growth of 9.4 percent in the first three quarters of the year.
China's exports saw year-on-year growth of 31.3 percent for the first three quarters, with the country registering a trade surplus of US$68.3 billion for the period, the report said.
Meanwhile, foreign-exchange reserves rose to US$769 billion by the end of the third quarter, up US$153 billion compared with the beginning of this year, according to the report.
Kao said that the yuan's appreciation led to a loss of some 130 million yuan (US$16.1 million) in trade for the July to October period, but the figure represents only a miniscule 0.013 percent of the total trade revenue of enterprises in China for that period.
Moreover, as nearly half of the enterprises in China had taken precautions -- such as boosting production efficiency, upgrading product quality or maintaining the price value of exports -- to cushion the impact of a yuan appreciation, only a handful of companies were seriously affected by the 2-percent revaluation, Kao said.
The report showed that the revaluation had only a limited effect on foreign trade, with only 6.6 percent of surveyed enterprises choosing to decrease exports and a mere 13.7 percent choosing to try to boost sales in the domestic market to deal with the currency appreciation.
However, Kao said, Chinese enterprises do not really have the option of lowering their prices to offset the effects of the appreciation, as their profit margins are already very slim because of intense competition at home.
According to a survey by China's central bank, about 85.9 percent of polled enterprises said that they could only afford to cut their prices by a maximum of 3 percent.
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