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WASHINGTON: The rapid appreciation of the Chinese currency against
the US dollar is taking a big toll on Asian companies using China as
base for exports to the United States, according to a top US
business official.
The yuan has risen 18 percent against the dollar
since China abandoned a peg in July 2005, and the currency breached
a key psychological level of 7.0 yuan to one dollar on April 10.
The higher yuan makes US exports more
competitive with Chinese goods in their home market, while business
costs for largely Asian companies producing and exporting from China
will rise as they pay more local currency for labor and raw
materials and sell their products to the US market in dollars.
Meanwhile US firms manufacturing inside China,
most of which aim their goods for the huge Chinese domestic market,
are not as greatly affected, said US-China Business Council
President John Frisbie.
“I think it is probably a bigger issue for all
those companies from other economies in Asia that have invested in
China for the US market,” he told AFP. “And that’s companies
from Japan, Korea, Taiwan, Hong Kong, Malaysia and Singapore.”
Frisbie said many Asian companies selling to the
US market had shifted their production to China over the last 10
years or so to be more cost-competitive.
“I’m sure for them, the exchange rate change
and other cost increases happening in China now are having an
impact. That is a different set of companies than US companies, most
of which invested in China for the China market,” he said.
Besides the falling dollar, the Asian companies
are also reeling from the effects of a weakening American demand on
the back of an economic slowdown, reports said.
The dollar has fallen about 4 percent to the
yuan so far this year, after dropping 7 percent last year.
The yuan’s rise, partly permitted by Beijing
to contain soaring inflation, is a bit of an irony. Beijing has been
accused for years by Washington of controlling the yuan’s
direction and keeping it low against the dollar to make Chinese
goods more competitive in the global market.
US lawmakers particularly had threatened to
impose sanctions on China as the US trade deficit with the world’s
most populous nation sank deeper into the red.
Frisbie said that his council’s view on the
yuan exchange rate had been consistent in that “the best
determinant of its true value should be the market.”
The prices of China-made goods in the United
States have gone up, but not as much as the yuan appreciation, while
Chinese exports are growing much less rapidly, noted Nicholas Lardy,
a China expert at the Washington-based Peterson Institute for
International Economics, which recently published a book “Debating
China’s exchange rate policy.”
Lardy said while the salience of the yuan issue
in the US Congress had diminished amid the Chinese currency’s
appreciation, the “underlying concern” over China’s massive
current account surplus remained.
“We should not be looking at the bilateral
renminbi [yuan]-dollar rate but at the renminbi vis-á-vis a
trade-weighted basket of currencies of China’s trading
partners,” he said.
Since mid-2005, the yuan has appreciated by 18
percent against the dollar but “it only rose by 10 percent on a
trade weighted basis and this is not going to make a dent on that
massive surplus,” Lardy said.
In 2007 China recorded an enormous current
account surplus of $378 billion, or 12 percent of its gross domestic
product.
-- AFP
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