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Greater China

Jul 28, 2005

Taiwan cos mull relocation after revaluation

TAIPEI - China's recent revaluation of its currency has increased operating costs for many Taiwan companies in China and some of them are considering shifting their operations to countries in Southeast Asia to reduce costs, business sources said July 26.

According to Chinese National Association of Industry and Commerce Chairman Huang Mao-hsiung, China's 2.1% revaluation of its currency, which puts the yuan at 8.11 to the US dollar, will impact export-oriented Taiwan companies operating in China, and the extent of the consequences will depend on the individual companies' business scale and management capacity.

Although Huang acknowledged that the rise in the value of the yuan is not expected to slow the investment pace or long-term market deployment by Taiwan businesses in China, he said that some Taiwan enterprises that set up operations both in China and countries in Southeast Asia are mulling the possibility of relocating to other countries.

Operating costs in China have been mounting for the last 10 years, and the further strengthening of the yuan is set to slash Taiwan businesses' profit margin, a situation that has led many Taiwan companies to consider relocations, a Taiwan investor said.
Lehman Brothers, a global investment bank that serves the financial needs of corporations, governments and high net worth investors worldwide, has predicted that the yuan will further appreciate in value by 5% by the end of this year. The recent revaluation marked China's first but significant step toward becoming a member of the global financial system, the bank said, adding that its impact will be profound over the long term.

While China agreed to allow the yuan to float in a narrow band against a basket of currencies, many Asian currencies also gained in value against the US dollar, leading governments in the region to place greater emphasis on domestic demand - a situation that the bank said will noticeably help to alleviate global financial imbalances.

The yuan revaluation also has underscored the close cooperation among central banks in Asian countries, while the US Federal Reserve will seek to maintain even closer interaction with the People's Bank of China, Lehman Brothers said, adding that an appreciating Chinese currency is expected to effectively stem calls for protectionist measures from the US and the EU in recent months.

(Asia Pulse/CNA)

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