Chinese exporters adapt to the rising yuan

Looking at China's snowballing trade surplus since its exchange rate reform in July 2005, one might think the appreciation of the Chinese currency yuan, also known as renminbi (RMB), had gone largely unnoticed by the country's exporters.

Yin Mingshan, chairman of the Chongqing Lifan Group, China's largest private motorcycle manufacturer, noticed that pressure from the rising yuan never ceases to ease up. "The impact is tangible and costly," he says.

The self-made entrepreneur who started from scratch 15 years ago earned 78 million yuan less from exports worth US$318 million after the RMB rose by 4 percent against the US dollar at the end of last year.

By August this year when the RMB had gained more than 9 percent accumulatively to reach 7.57 yuan to US$1, five of the company's smaller Chinese rivals had folded.

Lifan foresees motorcycle exports slowing from last year's 30 percent rise to 25.5 percent this year.

Instead of complaining as the RMB strengthens, however, many Chinese enterprises, including Lifan, rise to the challenge and seek to check exchange rate risks through all available means, such as cost efficiencies and technological innovation.

China's exports have grown to US$546.7 billion in the first half of this year, a rise of 27.6 percent from the same period last year, bringing the aggregate surplus to US$112.5 billion, up 83 percent.

"We should give credit to our exporters, who bear the brunt of China's exchange rate reform as a stronger yuan squeezes their profitability and dampens their competitiveness in world markets," says Tan Yaling, a research analyst with the Bank of China.

China scrapped the yuan peg to the US dollar and linked it to a basket of currencies in July 2005 so as to allow the currency to float in line with market changes. But a daily floating band was imposed to ensure only a gradual appreciation. This encourages exporters to become more competitive through quality, brand reputation and technology.

"If the RMB had gained 20 percent overnight, a legion of Chinese enterprises would have gone bust. Now we have time to adapt, upgrade our production and get stronger," Yin says.

Yin's company has registered 3,807 patents at home and abroad, the most among all domestic automobile companies. Its flagship product, the Lifan 50-200ml Single Cylinder Gasoline Engine, and motorcycles were sold to more than 100 countries in South-East Asia, West Asia, Europe, Africa, and South America. It has also begun producing sedans.

The sense of the urgent need for changes is prevalent among China's exporters, especially in such traditional sectors as textile.

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