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News from China
Exporters to benefit from currency dip
17th August 2015

 

 
 
 
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.
 
Source: Shanghai Daily, August 17, 2015
Exports to get back on track this year
14th August 2015

 CHINA’S exports will hopefully return to positive territory this year as the latest monthly slump was partly caused by base effect, an official with the Ministry of Commerce said yesterday.

“The export structure is improving and the country’s share in the global market is steadily expanding — these trends have not been changed,” said Zhang Ji, assistant to the commerce minister.

China’s exports in the first seven months fell 0.9 percent year on year, with exports in July slumping 8.9 percent, compared with a 2.1 percent increase in June.

Zhang attributed July’s plunge to “exceptionally high” growth in the same period of last year, saying the decline would have been within a normal range if the base effect was excluded.

In July 2014, exports surged 14.5 percent year on year.

Though softening due to weaker external demand and rising costs, exports still outperformed those of other major economies, Zhang said.

Exports in the first six months by the United States and Japan fell by 5.2 percent and 8.1 percent, respectively, according to data from the World Trade Organization.

China’s exports rose by 0.9 percent in that period.

Zhang said there has been increased pressure on foreign trade, saying companies in the sector are having a hard time. Imports will likely stay weak, he said, but the downward momentum should be slower.

Source: Shanghai Daily, August 14, 2015
Sales of passenger vehicles in China plummet 6.6% to 1.3m
13th August 2015

 THE slump in China’s car market worsened in July as sales contracted by 6.6 percent, according to industry figures released yesterday.

People in the world’s biggest market by number of vehicles bought 1.3 million cars, minivans and other passenger vehicles, said the China Association of Automobile Manufacturers.

Sales growth that peaked at 45 percent in 2009 has declined steadily as the world’s second-largest economy cooled and cities imposed ownership limits to curb smog and congestion.

The fall in recent months has been far sharper than expected, leading General Motors Co, Volkswagen AG and Chinese SUV brand Great Wall Motors to cut prices.

Global car brands have invested heavily in trying to appeal to Chinese tastes.

On July 22, GM announced a US$5 billion plan to develop models with its main Chinese partner, Shanghai Automotive Industries Corp, to sell in China, India, Brazil and other developing markets.

Last month’s slide in sales followed June’s 3.4 percent decline, which was only the third such monthly contraction since September 2012.

This year’s downturn has been so abrupt that analysts who expected sales growth of up to 8 percent have cut their forecasts to as little as 1.7 percent.

Total vehicle sales, including trucks and buses, fell 7.1 percent in July to 1.5 million vehicles, though some types were relatively strong. SUV sales rose 34.2 percent to 393,000 vehicles, the association said.

Sales of passenger vehicles in the seven months through July rose 3.9 percent year on year to 1.1 million. Total vehicle sales came close to stalling, rising just 0.4 percent to 1.3 million.

Sales by Chinese brands rose 5.1 percent to 494,000 and their market share rose by 1.2 points to 38.9 percent.

GM, which competes with VW for the status of China’s biggest-selling car brand, said sales by the company and its Chinese partners fell 4 percent in July to 229,175. For the year to date, sales rose 3.3 percent to 1.9 million.

Ford said its July sales of Ford-brand vehicles dropped 6 percent year on year to 77,100.

Nissan said its July sales fell 13.9 percent to 84,200. For the year to date, sales rose 2.8 percent to 672,100 units.

Source: Shanghai Daily, August 13, 2015
Stocks flat after depreciation of yuan
12th August 2015

 HANGHAI shares ended flat yesterday after the central bank allowed the yuan to depreciate to its lowest level against the US dollar for almost three years.

The Shanghai Composite Index closed down 0.01 percent at 3,927.91 points.

Earlier in the day, the People’s Bank of China set the midpoint for the currency at 6.2298 yuan to the dollar, a rise of 1.9 percent from 6.1162 on Monday.

The central bank’s move came hot on the heels of the release of weak economic data, which included a sharp fall in exports and producer prices dropping to their lowest level for almost six years.

While the weaker yuan should benefit China’s exports, it will also result in capital outflows from the stock market and hit asset valuations, with the financial and property sectors likely to suffer most, UBS Securities said in a note.

Wang Yang, a researcher with Guotai Junan Futures, said it will not be long before the central bank cuts interest rates again to offset the pressure of the capital outflows.

Stock performance diverged on the news. Companies in the aviation sector, which tend to hold large amounts of debt denominated in US dollars, suffered the most, with the shares of China Eastern Airlines and China Southern Airlines both falling by over 7 percent.

In contrast, industries that rely heavily on exports were among the biggest winners, with the textile manufacturing sector rising 4.5 percent.

The banking sector was also weak yesterday. China Merchants Bank lost 2.3 percent to 18.20 yuan (US$2.88), the Bank of Beijing fell 2 percent to 9.08 yuan, and the Industrial Bank dropped 2 percent to 15.96 yuan.

The flat overall performance brought to an end two days of gains led by speculation about government reforms of state-owned enterprises.

Source: Shanghai Daily, August 12, 2015

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