A rise in the yuan would be a disaster for labor-intensive Chinese exporters, a semi-official trade group said yesterday, as frictions grow with the US and other Western powers over Beijing’s stable currency policy.
The China Council for the Promotion of International Trade was checking with more than 1,000 exporters in 12 industries on whether they could cope with a stronger exchange rate, Zhang Wei (張偉), vice-chairman of the association, said.
Exporters in labor-intensive sectors such as garments and furniture worked on margins as small as 3 percent, he said.
“If the yuan rises, these companies will face the immediate risk of going bust as their profit margin is already very narrow,” Zhang told a news conference. “So for these companies, the consequences would be disastrous.”
China is under growing pressure from Washington to let the yuan appreciate. US lawmakers are threatening to slap duties on Chinese goods unless Beijing abandons its effective peg of 6.83 yuan per dollar instituted in mid-2008 to help its exporters ride out the global financial crisis.
While external pressure on China to push up the yuan is intense, domestic pressure to hold the currency down is even greater, said Zhang, whose members include the country’s biggest exporters.
China’s shipbuilders alone had US$150 billion of orders on hand, so a stronger yuan would result in immediate losses, he said. Only a minority of Chinese firms hedge exchange rate risk.
Exporters of telecommunications equipment and mechanical products would also be particularly vulnerable, he said.
Several branches of government, including the ministries of commerce and industry, conducted similar currency stress tests last month.
A government source familiar with one of the missions to China’s coastal exporting hubs said it came back unconvinced that the advantages of a stronger yuan would outweigh the drawbacks because of the razor-thin margins that Zhang mentioned.
“But having said that, we found that these companies are quite flexible in adapting to new market conditions,” he said.
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