LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 432 words
HEADLINE: Chinese factories will feel pinch on exports MANUFACTURING:
BYLINE: By ALEXANDRA HARNEY
DATELINE: HONG KONG
BODY:
In its interim report for the six months to March 31, Yue Yuen Industrial, the world's largest manufacturer of branded footwear, said a revaluation of the renminbi would "be a matter of mutual concern among the group and its customers".
As this warning became reality on Thursday, Yue Yuen began calculating the toll on its business. Beijing's 2.1 per cent revaluation will lower operating margins approximately 0.4-0.5 per cent immediately as the group's yuan-denominated costs, such as workers' wages, rise.
"It's difficult for us to do anything (about this) in the short term" because the company's contracts are fixed two to three months in advance, said Terry Ip, director of investor relations.
The revaluation of the renminbi comes at a tough time for Chinese export manufacturers, which produce a growing share of the world's goods. After a year of soaring commodity prices, global trade disputes and intensifying competition, factory profit margins are shrinking. Unless they can negotiate higher prices into their contracts with international buyers, manufacturers face further pressure on margins.
"I lost Rmb200,000 (Dollars 24,660) on yesterday's appreciation," said Sunny Chan, director of Tak Fu Hong Trading, which makes lights for Europe and South America in southern China's Guangdong province. Tak Fu Hong's contracts, denominated in US dollars, are fixed to the end of the year. Mr Chan had expected a revaluation in 2006.
At Add New Technology, which makes DVD players and speakers, profit margins can fall as low as 3 per cent. "The impact (of the revaluation) is huge for us," said Frank Deng, director. "I think the (export) volume will decrease by about 20-30 per cent this year."
Chinese manufacturers' leverage in price negotiations with international buyers is limited because there is always a factory that can do it more cheaply. Larger groups, such as Hong Kong-listed Yue Yuen, which managed to raise its average selling price in the first half to offset some of the higher material costs, have more bargaining power.
"It's impossible to ask the international buyers to accept a higher price," said Zhang Yisheng, director of Chai Da Garment, which produces sportswear for the US market. "The competition is too fierce."
Analysts said one of the reasons Beijing opted for a small appreciation was to protect exporters, which employ millions.
With the timing of further revaluation unclear, export manufacturers said they would explore ways to keep costs down, including expanding production overseas - a sentiment likely to be shared by global companies sourcing from China.
LOAD-DATE: July 22, 2005
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 432 words
HEADLINE: Chinese factories will feel pinch on exports MANUFACTURING:
BYLINE: By ALEXANDRA HARNEY
DATELINE: HONG KONG
BODY:
In its interim report for the six months to March 31, Yue Yuen Industrial, the world's largest manufacturer of branded footwear, said a revaluation of the renminbi would "be a matter of mutual concern among the group and its customers".
As this warning became reality on Thursday, Yue Yuen began calculating the toll on its business. Beijing's 2.1 per cent revaluation will lower operating margins approximately 0.4-0.5 per cent immediately as the group's yuan-denominated costs, such as workers' wages, rise.
"It's difficult for us to do anything (about this) in the short term" because the company's contracts are fixed two to three months in advance, said Terry Ip, director of investor relations.
The revaluation of the renminbi comes at a tough time for Chinese export manufacturers, which produce a growing share of the world's goods. After a year of soaring commodity prices, global trade disputes and intensifying competition, factory profit margins are shrinking. Unless they can negotiate higher prices into their contracts with international buyers, manufacturers face further pressure on margins.
"I lost Rmb200,000 (Dollars 24,660) on yesterday's appreciation," said Sunny Chan, director of Tak Fu Hong Trading, which makes lights for Europe and South America in southern China's Guangdong province. Tak Fu Hong's contracts, denominated in US dollars, are fixed to the end of the year. Mr Chan had expected a revaluation in 2006.
At Add New Technology, which makes DVD players and speakers, profit margins can fall as low as 3 per cent. "The impact (of the revaluation) is huge for us," said Frank Deng, director. "I think the (export) volume will decrease by about 20-30 per cent this year."
Chinese manufacturers' leverage in price negotiations with international buyers is limited because there is always a factory that can do it more cheaply. Larger groups, such as Hong Kong-listed Yue Yuen, which managed to raise its average selling price in the first half to offset some of the higher material costs, have more bargaining power.
"It's impossible to ask the international buyers to accept a higher price," said Zhang Yisheng, director of Chai Da Garment, which produces sportswear for the US market. "The competition is too fierce."
Analysts said one of the reasons Beijing opted for a small appreciation was to protect exporters, which employ millions.
With the timing of further revaluation unclear, export manufacturers said they would explore ways to keep costs down, including expanding production overseas - a sentiment likely to be shared by global companies sourcing from China.
LOAD-DATE: July 22, 2005
posted by Eastlaw at 12:49 AM
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