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BIZCHINA> News
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Yuan appreciation impacts textiles
By Tang Fuchun (China.org.cn)
Updated: 2006-05-29 10:24
Although the yuan has only fluctuated slightly against the US dollar in the last few months, analysts, more so foreign analysts, have warned that the yuan might quicken its pace of appreciation soon. On May 15, the yuan traded at an all-time high of 7.9982 against one US dollar. But it was unable to maintain that high and by Friday, May 26, it was trading at 8.0216 yuan to the dollar. "Generally speaking, the impact of this particular exchange rate movement was not big," Zhang said. "Given that garment manufacturing requires a turnaround time of two to three months, a one to two percent fluctuation in profit margin is already factored in from the beginning." However, major losses can be attributed to the revaluation exercise last July, the largest reform of China's foreign exchange system in 10 years. "We had signed and delivered on orders, but by the time we wanted to do the foreign exchange transactions at the bank, the exchange rates had suddenly changed," Zhang said. On July 21, 2005, the People's Bank of China (PBC), the country's central bank, announced that it was scrapping the yuans' decade-long peg to the US dollar. A basket of currencies and a managed floating system, offering a wider trading band, was to be used instead. The move sent the yuan appreciating by 2 percent in a flash, adversely affecting thousands of Chinese companies. Zhang's company, for example, lost between 2-3 million yuan (US$249,264 to 373,919) as a result of the revaluation, and subsequent orders were also affected. The revaluation of the yuan and the likelihood that it will continue to appreciate in time to come has raised concerns for the continued competitiveness of China's textile industry, which has, until now, been riding on its one market advantage; low prices. When Topnew started its export business several years ago, it traded mainly in manufactured trousers, jackets and work clothes. It earned an average of about six to seven yuan (75 to 87 cents) per garment. (For more biz stories, please visit Industries)
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Zhang Hongzhong, vice general manager of Beijing Topnew Import & Export Co., Ltd., has been keeping a close watch on the yuan's international exchange rates. Zhang's company trades mainly in knitted and woven products.