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Financial Times (London, England)
July 22, 2005 Friday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 11
LENGTH: 673 words
HEADLINE: Textile sector to be hit hard by stronger renminbi IMPACT ON CHINA'S ECONOMY
BYLINE: By GEOFF DYER
DATELINE: SHANGHAI
BODY:
The modest appreciation in the renminbi announced yesterday by the Chinese authorities will not have a dramatic immediate impact on the economy, although analysts believe the textiles and consumer goods sectors will be hardest hit by the stronger currency.
Exporters of products with slim profit margins will be most affected by the shift in currency policy but economists do not expect a sharp slowdown in the Chinese export machine - which led exports to increase 30 per cent in the first half of the year.
The property market, which has witnessed a spectacular surge in prices in many of China's largest cities, could also be affected if foreign investors decide the revaluation is a good time to take profits.
China's textiles industry has seen a surge in exports this year after the elimination of quotas on exports allowed it to take more advantage of its low costs. However, the small profit margins in many areas of the textiles industry mean it could be hurt the most by a renminbi revaluation.
"Exporters of low-value added products such as textiles will be the most affected, as even a 2 per cent change can have a significant impact on profitability," said Ivan Chung, managing director at Xinhua Finance, the Chinese credit ratings agency. "There are other developing countries such a Bangladesh and Indonesia that are also highly competitive in this area."
However, Hong Liang, economist at Goldman Sachs in Hong Kong, said that over the last few years China had developed much deeper supply networks for textile products within the country, which would insulate it from some currency movements. In other words, China's competitive advantage has come not just from cheap labour but from its ability to rapidly turn round large orders for finished clothing items and shoes.
"It will not be easy for other countries to take away this business from China even with a stronger renminbi," she said.
The makers of mass-market consumer products such as washing machines and microwave ovens, which often have relatively small margins, could in addition be held back by a stronger renminbi.
By the same token, the retailers that source heavily from China, such as Wal-Mart and Ikea, are also expected to notice the impact of the revaluation.
The extent of the pressure on margins will vary sig-
nificantly, however, from company to company.
China's manufacturing platform first took off with the assembly of finished goods and many groups still import a large proportion of the components they use.
This could mean cheaper imports will compensate for pressure on the prices of exports. However, economists point out that the sharp slowdown in imports in China this year is one indication that manufacturers are sourcing more of their components from within the country.
Another possible weak spot is the property market, which is already under pressure in a number of cities.
Not only could the currency revaluation be accompanied by higher interest rates in the near future, but some analysts believe it could encourage some of the foreign investors who have put money into Chinese property to sell. However, as the central bank is expected gradually to strengthen the currency after yesterday's small change, Jonathan Anderson at UBS argues it could lead to more speculative inflows into areas such as property, as foreign investors look for more renminbi assets.
In the short-term, the stronger renminbi is not expected to have a significant impact on raw materials prices, which have surged in the last three years on strong Chinese demand.
"In markets as volatile as commodities, a 2 per cent change is the sort of fluctuation you see in any one day," said Ian Roper, analyst at Macquarie International in Shanghai. "The markets will probably shrug it off."
However, for the Chinese steel industry, which has been expanding at a rapid rate, the revaluation could reduce investment in new manufacturing capacity by making exporting less attractive.
"It will help slow the growth in exports, which is what the government is looking for," said Mr Roper.
LOAD-DATE: July 21, 2005
July 22, 2005 Friday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 11
LENGTH: 673 words
HEADLINE: Textile sector to be hit hard by stronger renminbi IMPACT ON CHINA'S ECONOMY
BYLINE: By GEOFF DYER
DATELINE: SHANGHAI
BODY:
The modest appreciation in the renminbi announced yesterday by the Chinese authorities will not have a dramatic immediate impact on the economy, although analysts believe the textiles and consumer goods sectors will be hardest hit by the stronger currency.
Exporters of products with slim profit margins will be most affected by the shift in currency policy but economists do not expect a sharp slowdown in the Chinese export machine - which led exports to increase 30 per cent in the first half of the year.
The property market, which has witnessed a spectacular surge in prices in many of China's largest cities, could also be affected if foreign investors decide the revaluation is a good time to take profits.
China's textiles industry has seen a surge in exports this year after the elimination of quotas on exports allowed it to take more advantage of its low costs. However, the small profit margins in many areas of the textiles industry mean it could be hurt the most by a renminbi revaluation.
"Exporters of low-value added products such as textiles will be the most affected, as even a 2 per cent change can have a significant impact on profitability," said Ivan Chung, managing director at Xinhua Finance, the Chinese credit ratings agency. "There are other developing countries such a Bangladesh and Indonesia that are also highly competitive in this area."
However, Hong Liang, economist at Goldman Sachs in Hong Kong, said that over the last few years China had developed much deeper supply networks for textile products within the country, which would insulate it from some currency movements. In other words, China's competitive advantage has come not just from cheap labour but from its ability to rapidly turn round large orders for finished clothing items and shoes.
"It will not be easy for other countries to take away this business from China even with a stronger renminbi," she said.
The makers of mass-market consumer products such as washing machines and microwave ovens, which often have relatively small margins, could in addition be held back by a stronger renminbi.
By the same token, the retailers that source heavily from China, such as Wal-Mart and Ikea, are also expected to notice the impact of the revaluation.
The extent of the pressure on margins will vary sig-
nificantly, however, from company to company.
China's manufacturing platform first took off with the assembly of finished goods and many groups still import a large proportion of the components they use.
This could mean cheaper imports will compensate for pressure on the prices of exports. However, economists point out that the sharp slowdown in imports in China this year is one indication that manufacturers are sourcing more of their components from within the country.
Another possible weak spot is the property market, which is already under pressure in a number of cities.
Not only could the currency revaluation be accompanied by higher interest rates in the near future, but some analysts believe it could encourage some of the foreign investors who have put money into Chinese property to sell. However, as the central bank is expected gradually to strengthen the currency after yesterday's small change, Jonathan Anderson at UBS argues it could lead to more speculative inflows into areas such as property, as foreign investors look for more renminbi assets.
In the short-term, the stronger renminbi is not expected to have a significant impact on raw materials prices, which have surged in the last three years on strong Chinese demand.
"In markets as volatile as commodities, a 2 per cent change is the sort of fluctuation you see in any one day," said Ian Roper, analyst at Macquarie International in Shanghai. "The markets will probably shrug it off."
However, for the Chinese steel industry, which has been expanding at a rapid rate, the revaluation could reduce investment in new manufacturing capacity by making exporting less attractive.
"It will help slow the growth in exports, which is what the government is looking for," said Mr Roper.
LOAD-DATE: July 21, 2005
posted by Eastlaw at Friday, July 22, 2005
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