| Zhou Xiaonan is increasingly stressed, counting the shrinking profits of his company's exports as the Chinese currency, the Renminbi (RMB) of yuan, rises.
"The profit loss was 5 US cents per garment at first, then it widened to 10 cents," said Zhou, deputy general manager of Huamei Thread Company Limited, a Sino-US joint venture based in Ningbo city, East China's Zhejiang province.
"This is the toughest year for me since I began in the export business a long time ago, even tougher than last year when the world economy was at its bottom during the global financial crisis," Zhou said.
After racking his brains to deal with rising labor and raw materials costs, Zhou has a new challenge -- the rising yuan.
The Chinese currency has strengthened by about 2 percent against the US dollar since the People's Bank of China (PBOC)'s pledge on June 19 to increase exchange rate flexibility.
Zhou said prior to the yuan's appreciation, his company had raised its export prices several times this year to pay for the rising costs, with some products' prices set 20 percent higher than a year ago.
"It is very difficult for us to take new orders because our foreign buyers are unlikely to accept more price hikes because of the exchange rate," he said.
Like other Chinese exporters, Zhou fears the yuan's appreciation will incur losses in foreign exchange settlements with foreign buyers.
A Xinhua survey in the provinces of Guangdong, Zhejiang, Jiangsu and Shandong, China's leading exporting areas, in September found that a sharp increase in the yuan's value could send many Chinese exporters to the wall.
Liang Yaowen, director of the Foreign Trade and Economic Cooperation Department of the Guangdong Provincial government, told Xinhua China's exporters were still far from recovering from the global economic downturn.
An average 20-percent increase in employees' wages, more costs in power consumption and a doubling of shipping costs had slashed profit margins of exporters to a very low level.
"If we bow to US government pressure and let the yuan rise further and faster, the outlook for those companies will become worse," he said.
The US House of Representatives approved a bill on Sept 29 allowing the Commerce Department to impose tariffs on imports from countries with "fundamentally undervalued" currencies.
However, a stronger yuan is very likely to be the last straw for many Chinese exporters.
A survey by the Foreign Trade and Economic Cooperation Department of the Guangdong Provincial government showed the province's exporting firms were struggling as production costs -- particularly labor -- rose sharply this year.
"Due to more anti-dumping and anti-subsidy investigations by the US and European governments, it's already very difficult for our company to survive this year," said Qian Jin, head of Hongyuan Motorcycle Exporting Corporation in Guangzhou, capital of South China's Guangdong province.
"If the yuan's appreciation accelerates, exporters like us will suffer huge losses when we sell our foreign exchange to get Renminbi," he said.
Xinhua's survey found the profit margin for labor-intensive exporters industry such as producers of textiles, garments, footwear, toys and auto parts has dropped below 5 percent this year, leaving little room for those companies to afford a stronger yuan.
Every percentage point rise of the yuan's value in real terms equalled a 0.63-percentage-point reduction in the volume of exports of machinery and electronic products, and a 1.47-percentage-point contraction in exports of textiles and garments, according to a study by the Jiangsu Provincial Academy of Social Sciences and the province's Department of Commerce.
Xu Weimin, president of Jiangsu Dongdu Textile Group Co Ltd, said the general textile industry's average profit margin was between 3 percent and 4 percent.
"If the yuan rises by more than 5 percent, about two thirds of textile companies will lose," Xu said. |
