BEIJING - Zhang
Yang, the driving force behind a Sino-foreign
joint venture knitwear exporter in east China's
Zhejiang province, has cultivated a habit of
opening his computer and checking the daily
exchange rate when he enters his spacious office.
There was no rest for Zhang's heart on
February 20 when the Chinese currency reached a
new high, with a central parity rate of 7.1452
yuan against one US dollar. It was the 17th record
high for the yuan since the beginning of this
year.
Zhang was understandably disturbed
by the appreciation of the yuan, also known as the
renminbi, because it has a strong impact on the
performance of his firm.
"We keep an
average profit margin at about 3% from exporting
garments. We will struggle to
maintain that if the yuan remains so high."
A 1% appreciation in the currency results
in a loss of 2% in profit margin in the
labor-intensive textile industry, the bulk of
China's foreign trade, said Guotai Junan
Securities Research Institute statistics.
The yuan has appreciated more than 13%
since it was de-pegged from the US dollar in July
2005. It climbed 6.9% against the dollar in 2007
and has appreciated more than 2% so far this year.
Zhang, however, is well prepared to face
up to the growing export risks rather than await
doom. His way out has been to divert many of his
orders to the domestic market and sell the
products as "export goods withdrawn for sale on
home market" shops.
"These days, exported
garments make profit largely on the basis of
volume. Sales in the home market create higher
profits, normally hitting 10 to 15%," said Zhang,
glancing away from his computer screen, hastening
to issue more orders of woolen sweaters and
underwear to Hangzhou, the Zhejiang capital.
Exports, a driving force of the Chinese
economy along with fixed-asset investment, have
come to a turning point, as evident in the
declined monthly growth rate in January, industry
experts said.
China's trade surplus jumped
22.6% year-on-year to US$19.49 billion in January,
according to the General Administration of
Customs. The surplus declined in monthly growth
rate for the third consecutive occasion. In
addition, the monthly surplus has been more than
$20 billion since last May.
Imports grew
42% year-on-year to $45.65 billion under the
general trade mode in January. The year-on-year
growth rate was 8.8 percentage points higher than
that of exports. Imports via general trade
exceeded 50% of the gross import values for the
month, the first time in recent years. In January,
China exported $51.9 billion of goods, up 33.2%
year-on-year.
"The slowdown in export
growth in January is largely a result of weakening
demand from abroad, a fallout from the US subprime
mortgage crisis, the appreciation of the renminbi
and, in some cases, China's decision to curb
exports of certain items by cutting export rebates
or imposing export taxes," said Li Yushi, vice
president of Chinese Academy of International
Trade and Economic Cooperation.
Resembling
their counterparts in the textile and garment
sector, China's grain enterprises have also felt
the chill and are turning their eyes away from
European and American markets and focusing on the
domestic market, which is helping to ease
ever-mounting inflation pressures in the country,
industry experts said. Chinese grain exporters
made big profits last year. In the first 11
months, net cereal exports grew 320% compared with
the same period a year earlier, largely a result
of price increases on world markets, observers
said. A decrease in grain yields worldwide caused
by unfavorable weather and growing demand for
cereals used for bio-fuel production conspired
toward the continuous price rises, they said.
Observers forecast the growth will slow this year.
Wenzhou Ouhai Xingda Flour Co Ltd, based in
eastern Jiangsu province, suspended exporting
flour towards the end of last year, said manager
Zhu Yihuai. Other major flour mills in the
province that exported substantive amounts in 2007
followed.
The suspension was stimulated by
the promulgation of three policies meant to curb
grain exports boosted by climbing international
prices, and to stabilize domestic food prices.
On December 20, the Ministry of Finance
(MOF) scrapped export rebates for 84 agricultural
products to discourage exports and to ensure the
domestic supply of farm produce in the nation
where food prices drove inflation to an 11-year
high of 6.9% in November. The products included
wheat, oat, maize, paddy, rice, broomcorn, soybean
and their powdered byproducts.
Export
rebates for grain had been 13%. The move would
help regulation of grain imports and exports and
would slow export growth, observers said.
One week later, to prevent the country
from importing high international grain prices and
to rein in surging domestic prices, the MOF said
it would levy export taxes on wheat, corn, rice,
soybeans and various processed grains in 2008. The
export tax rates would range from 5% to 25% and
affect 57 types of grain and grain products.
On January 1, China started a
temporary-quota policy on the export of wheat,
corn and rice powder to guarantee an adequate
domestic supply.
"Global staple food
supply has been tightly balanced," said Liu
Longheng, a Peking University tax law professor.
"China must give priority to feeding its 1.3
billion people ... [The government] is even likely
to take further measures to harness exports of
processed grain products."
As the local
market calls for a greater supply of grain, Zhu
Yihuai rushes about the cities of Hangzhou,
Zhoushan and Fuyang, the leading grain markets in
Zhejiang, to sell off his stored grain to private
grain merchants.
"It is the peak season
for grain. Private grain sellers compete
vigorously for sources of goods. We are in a good
position to sell grain at good prices."
Zhu also visits grain shops and
supermarkets to promote his brand as a grain
agent. He has even extended orders to the
neighboring grain producing provinces of Jiangsu,
Anhui, Jiangxi and Shandong.
China's
export orders index, under the Purchasing
Managers' Index, shrank in January for the first
time in the past three years. Export growth was
expected to drop to 18% in 2008, compared with
25.7% in 2007. Industry experts welcomed the trend
that more export-oriented businesses have returned
to the home market.
"The accelerated
return of export-based enterprises, particularly
those in the CPI [consumer price index]-weighted
textile and grain sectors, will undoubtedly help
stabilize domestic prices and ease inflation
worries," said Zhang Xiaoyu, an international
market research fellow from the Ministry of
Commerce.
Even so, sales in the domestic
market are not an easy option. According to Zhang
Yang, the Zhejiang knitwear exporter, to sell
products in the home market his business had to go
through complex examination and approval
procedures to change from its previous corporate
identity of an enterprise dedicated to processing
materials supplied by clients to a common
Sino-foreign joint venture.
It must also
tap into the mid- and high-end home markets with
high-quality and value-added products.
"The Chinese market is no smaller than the
EU and the United States. We may first cultivate
our own brand by boosting our business on the
domestic retail market. After that, we will export
products under our own brand," he said.
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