CHINA’S export-oriented companies are set to be the biggest winners from last week’s plunge in the value of the yuan.
Some of the many factories flooding Western markets with “Made in China” products said they will benefit from the depreciation, although the boon might be temporary, while others fear rising import costs could offset the benefit.
Xu Jianping, head of textile company Zhongxiang in east China’s Zhejiang Province, called the weakening yuan “a big bonus.”
The profits of his company, which sells cloth and garments overseas, will rise by 100 yuan (US$15.65) for every basis point the yuan’s exchange rate drops, he said.
“The average margin rate in China’s textile industry is about 5 percent. Every penny in profit increase will be helpful,” he said.
Cost-sensitive textile products take up a major portion of China’s exports. History shows that if the yuan depreciates by 1 percent against the US dollar, the average margin rate in the industry will increase by 2-6 percent.
“The cheaper yuan means our products are cheaper. Our competitiveness is rising,” said Wang Li, who is in charge of customs affairs at Luthai Textile Co in east China’s Shandong Province.
“We are trying to take advantage of the depreciation and seek a stronger footing overseas,” she said.
“The weaker yuan will have positive effects on machinery makers as well,” said Tang Yongping, general manager of Bracalente Manufacturing Group’s (BMG) China subsidiary.
The yuan was mildly appreciating when Tang joined BMG in 2006. A strong yuan added pressure to Chinese manufacturers already suffering from rising labor costs.
“To some extent, the ongoing depreciation will help reduce the financial burden,” he said.
China overhauled its exchange rate formation mechanism this week, shortly after the world’s largest goods trader reported an 8.9 percent slump in exports in July.
While export-oriented companies hailed the depreciation, those relying on imported raw materials are concerned the cheaper yuan will increase their production costs.
“We have not yet felt the pinch because we are using oil storage,” said Zhao Huili, trade manager of Shandong-based refiner Luqing Petrochemical Co.
“But we reckon the price of imported crude oil denominated in the US dollar will rise” and tariffs will increase accordingly, he said.
China’s imports also fell by 8.6 percent in July. Total foreign trade dropped 7.3 percent in the first seven months, while the country’s annual growth target for this year is about 7 percent.
Liu Sai, a customs officer in Jinan, capital of Shandong, said the current fluctuation in the yuan’s value will reassure trading companies, and advised them to arrange production to extend gains and avoid losses.
“What really matters now is how long this round of depreciation will last and how much the yuan will fall,” said Tang Yongping.
Zhang Xiaohui, assistant governor of the People’s Bank of China, said the value of the yuan has returned to market levels after the massive declines of last week.