GUANGZHOU - Exhibitors at China's largest trade fair may have one more question
to ask when their paper-thin profits are further squeezed by a fast-rising
yuan.
"Are you willing to pay by euro?" Lu Jia, a sales manager from a local leather
manufacturer at the China Import and Export Fair, also known as the Canton
fair, ventured the final but most crucial question to her Turkish client after
introducing her products.
"Honestly, starting clearing of euro transactions rather than the US dollar is
not easy for my company, but it is still worth a try given a faster yuan rise
this year," the 23-year-old Lu said at the trade-promotion event in Guangzhou,
capital of southern Guangdong province.
The Chinese currency, the yuan, breached the 7-yuan mark for
the first time on April 10, after gaining 4.47% this year and 18.27% since the
government unpegged it from the dollar in 2005.
"The yuan appreciation has far outpaced our business growth," said Cao
Xiaojian, vice chairman of Jiangsu Shuntian.
The trade fair, which last spring attracted more than 30,000 standard stands,
over 200,000 visitors, and claimed business turnover above US$36 billion, is a
high-profile window into trade between China and the rest of the world and the
practical problems both sides face in doing business.
Like most other Chinese exporters, Cao earns dollar-denominated profits, which
are on the decline as the dollar becomes cheaper. He said that a 1% rise in the
yuan would result in a sales profit decrease of 2% to 6% and things were even
worse for the garment industry.
"Profit margins for home electrical appliances are between 3% and 5% and the
rising exchange rate has eaten them away," said Zhang Yujing, vice chairman of
China Chamber of Commerce for Import and Export of Machinery and Electronic
Products.
Most exhibitors at the fair had to raise their offers due to higher costs in
raw materials, energy and transport. Yet, they were afraid too-high prices
might scare away orders amid sagging demand due to a global slowdown.
Qingdao Haier, China's leading home-appliance maker, said it would re-set its
prices with overseas sellers once the yuan gained more than 3%. The new price
would be determined by the specific foreign exchange rate.
"A small rise in offers is acceptable," said Khaldoun Kalbouneh, general
manager of the Furniture World, a trading company headquartered in Palestine.
"But if the prices are too high, I may consider other markets."
Feng Bin, general manager of Suzhou Chunlan Air Conditioner, said he hoped to
carry out transactions via the euro. "The offer will expire in three months if
the client sticks to the dollar. The exchange rate changes too quickly."
Experts say the change of their currency clearing system is still not feasible
for most exporters as it involves adjustment of export markets and bargaining
with foreign buyers. Besides, such services in domestic banks are too
complicated, they say.
Some companies are therefore considering financial derivatives as a way out.
Shen Zhiming, a manager with Zhejiang Cathaya International, said his company
had bought currency futures for two years. "It is a real learning process for
Chinese enterprises, a process for internationalization."
Zhang Yujing said export-oriented sectors should improve their product mix, add
more value and use financial tools to evade risks by the yuan rise.
Textile firms, once an export engine of China, are fighting for their survival
this year, with rising costs and dismal overseas market hit by the subprime
crisis. Those firms wooing foreign buyers at the Canton Fair felt the pinch.
Few buyers visited their exhibition stalls, and fewer still signed contracts.
The yuan appreciation, together with the rising material and labor costs, has
driven some textile firms to the brink of bankruptcy.
The Lanyan Group, the largest denim products manufacturer based in the eastern
Shandong Province, received only one million-meter cloth order this year, one
fifth last year's total.
In the area where Lanyan is, only 70 out of more than 100 textile factories are
working normally. Even those still operating are finishing their previous
orders, said Zhang Meng, a manager with the Lanyan Group.
Changing the price tag is sure to be the first choice for many of the textile
exhibitors at the fair. However, the price rise has made foreign buyers
hesitate before making their decision.
William Lowry, an American clothing buyer, came to the fair for the 20th time
this year. It was different from previous years because this time he just
looked, he did not buy.
"Chinese product competitiveness is not as strong it was. I'm thinking of
buying from other countries. The reduction in tax rebates and the devaluation
of the dollar have made Chinese products 20% higher than they were. That means
I'm looking elsewhere," he said.
Setting contracts in euros or British pounds to avoid foreign exchange losses
or setting up a higher long-term exchange rate is another approach the textiles
firms are using.
"We set up the exchange rate with the US dollar at 6.2 when we sign agreements
on the fair," said Yang Hongchang, a sales manager of Ningbo Yongnan Knitting,
an exporter of knitted coats and t-shirts to Europe, Canada, New Zealand and
Russia.
Those companies with their own brand are being less affected. Busen Group, a
men's wear manufacturer in Zhejiang province, received normal orders this year.
Some 70% of products for export from the company belonged to its own brands so
it had the right to fix the price, said Wu Yongjie, deputy executive manager of
the company.
Jiangsu Shuntian, China's largest listed textile manufacturer, has pulled
investment from textiles into other industries such as chemicals, finance and
securities, mines and high-tech products.
But to Yang Hongchang, maintaining the factory to operate is his goal. He is
ready to receive orders without profit. "As a saying goes, only by breaking
your arm can you survive. As long as our factory is working, opportunity will
definitely come," he said.
The Canton Fair has two phases, from April 15 to 20 and April 25 to 30. The
first phase features textiles, garments, health products, household appliances,
tools, small vehicles and hardware.
Food, tea, kitchenware, decorations, toys, sporting goods and office supplies
dominate the second phase.
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