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China prepares for yuan revaluation

Some busineses are likely to benefit from a dearer yuan while otherss are thinking of sourcing or even moving elsewhere

By Keith Bradsher  /  NY TIMES NEWS SERVICE , GUANGZHOU

Leon Liu, pictured at his business in Guanzhou, says a more valuable yuan may force him to look to import materials. As speculators across Asia place ever larger bets on a revaluation soon of China's currency, investors and corporate executives alike are trying to prepare for what a more valuable yuan will mean for stocks and companies.

PHOTO: NY TIMES

As speculators across Asia place ever larger bets on a revaluation of China's currency soon, investors and corporate executives alike are trying to prepare for what a more valuable yuan will mean for stocks and companies.

For Romeo Dator, the portfolio manager of the US Global China Region Opportunity Fund, a no-load mutual fund in San Antonio, a 20-minute departure by the yuan from its usual trading range on April 29 was a signal to sell part of the fund's holdings of PetroChina, China's biggest oil producer.

"Who would be impacted negatively?" Dator asked. "Definitely the petrochemical companies," reasoning that they sell oil and chemicals priced in dollars but incur costs in increasingly valuable yuan.

For Leon Liu, a manager of the Xingan Quanyi Bamboo and Wooden Products Co., a manufacturer of wooden coat hangers for hotels and expensive retailers, a more valuable yuan will mean that bamboo grown near the company's factory in Rongjiang Village in southernmost China will become too expensive. He is considering wood imports from Indonesia, and possibly even opening a hanger factory there.

And for Chen Kuang-ping, the president of the Shunde Growth Corp., a Taiwanese-owned company here in southeastern China that assembles steel bookcases and other furniture from imported Taiwanese steel, a higher yuan could force a decision to close the local factory and move to India in search of cheaper labor.

"It would affect us a lot," Chen said. "We prefer the yuan to stay where it is."

But while a strengthened yuan might cause hardships for some companies and industries, others -- both Chinese and foreign -- are likely to come out ahead.

Most economists who follow the pronouncements of Chinese officials closely say that managers and investors are paying far too much attention to the Chinese currency, which has been pegged to the dollar for years -- that even if China does act soon, the value of the yuan is likely to change so little that it will have a very modest effect on international trade and corporate profits. The April 29 shift was, after all, just six-thousandths of a yuan.

Jonathan Anderson, an economist at UBS, predicts there is an 85 percent chance that China will simply tweak its current peg of 8.277 yuan to the dollar. He forecasts that Beijing will instead link the yuan to a basket of other currencies and then let the yuan rise gradually, by perhaps 1 percent to 4 percent over the course of the next year.

Anderson says there is a 14 percent chance that the yuan, also known as the renminbi, will be revalued by 5 percent to 7 percent, and just a 1 percent probability of a big revaluation of 15 percent to 25 percent.

"From a macro point of view the `renminbi question' has to be one of the most -- nay, perhaps the most -- overly hyped themes in the market today," he wrote in a research report. "Any reasonable adjustment scenario would have very little near-term impact at home, equally little near-term impact on China's neighbors" and essentially no effect on the United States.

But the possibility that China might revalue the yuan by even 5 percent -- a move the euro or yen has sometimes managed in days or weeks against the dollar -- has prompted a deluge of analysis. Some of the analysis remains valid, experts say, even if China lets the yuan move by only a percentage point or two at first but permits larger fluctuations later.

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