Dell Inc, the second-biggest maker of personal computers, isn't convinced the Chinese yuan's appreciation, sought by US Secretary of Treasury John Snow at the behest of American manufacturers, would be in its best interests.
"We do US$4 billion in local purchases and we have a major manufacturing facility that serves all of North Asia," said Bill Amelio, president of Dell's Asia-Pacific unit.
For Dell and other US companies that imported US$70 billion worth of Chinese-made components and goods last year, a stronger yuan would mean having to spend more dollars to buy the same products. That undermines the advantage of using China, where labor costs are low, as a base for manufacturing.
China said yesterday it may consider scrapping the yuan's decade-old peg to the dollar in favor of a link to the currencies of its major trade partners, a concession to Snow, who was visiting Beijing. Snow is scheduled to arrive in Phuket, Thailand, today for a meeting of finance ministers from 21 member-nations of the APEC group.
Pressure for China to break its peg with the dollar is coming from companies such as steelmaker Nucor Corp, which say an artificially weak yuan gives Chinese competitors an unfair advantage. Goldman Sachs Group Inc estimates the Chinese yuan, which has been fixed at about 8.3 per US dollar since 1995, is 15 percent undervalued.
Economists aren't convinced that China will allow its currency to strengthen. The weak yuan is propelling exports, which account for about a third of Asia's second-largest economy.
China says it needs economic growth of 7 percent a year to provide jobs for the 20 million people who enter the labor force each year.
The peg has also helped attract US$308 billion in FDI from manu-facturers such as Bridgestone Corp, the world's biggest tire maker, and Infineon Technologies AG, Europe's second-largest semiconductor maker.
A rise in the Chinese currency may not be welcome news for Intel Corp, the world's biggest computer chipmaker, which last month said it planned to invest US$375 million to build a second factory in China.
A stronger yuan may cause economic growth to slow in China, damping demand there for everything from cars and computers to insurance at a time when the economies of Germany and Italy are in recession.
"Anything which reduces China's competitiveness may mean that they have to slow down some of their domestic projects or some of their growth plans," said Derek Williams, Oracle Corp's executive vice president for Asia-Pacific. "That could have a knock-on effect."
The yuan appreciation sought by the US, Japan and others may slow economic growth in China, hurting South Korean exports, a Korean official said.
"When it comes to the yuan, if it appreciates it has many implications for the Korean economy," South Korean Deputy Finance Minister Kwon Tae Shin told reporters in Phuket, Thailand, where he is attending an APEC meeting. "If the Chinese economy becomes sluggish and their demand for Korean exports falls then it also has an effect."
Investment is another reason Asian finance ministers meeting in Phuket this week may want China to keep its currency system.
Asian companies, which once fretted about competition from Chinese goods, are now setting up factories there to take advantage of lower manufacturing costs and a growing domestic market.
"Customers want us to be in China," said Daniel Yeong, the managing director of Singapore-based GES International Ltd, which makes electronic cash registers for customers such as NCR Corp and opened a factory in Shanghai in July. "They always have this perception that as long as it's built in China, costs will be low."
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