Widening yuan band bittersweet for exporters
2012-April-19 Source: China View website
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Exporters attending a major trade fair in Guangzhou this week saw the wider trading band of the Chinese yuan against the U.S. dollar as a bittersweet reform move offering both opportunities and risks.

The People's Bank of China, the central bank, widened the daily trading limit of the Chinese yuan against the U.S. dollar to 1 percent from the previous 0.5 percent, effective Monday.

The move was welcomed by many big exporters at the 111th Canton Fair, which opened Sunday. Many companies expressed confidence in their independent pricing and risk management capabilities.

Liu Qinghua, deputy general manager of Hisense International Co., Ltd., considered the adjustment good news for his company, a Chinese consumer electronics giant.

While currency risks are common for exporters, Liu said the yuan exchange rate system was expected to be completely decided by market supply and demand in the long run.

"So businesses have to adapt themselves to the market," he said Tuesday at his company's booth at the fair. "The move also helps export-oriented companies foster their potential competitiveness."

Despite the risks they are facing, big companies at the fair see new opportunities in the change.

"If we pay closer attention to the exchange rate fluctuations and cope with the change more carefully, we can make more profits by cutting export costs," said Gao Yuanjia, general manager of Jiangsu Chunlan Import and Export Co., Ltd.

Many small and medium-sized companies, however, felt perplexed by the more flexible exchange rate.

As most export companies are used to the yuan's one-way appreciation, they get overwhelmed when facing two-way fluctuations, said Yuan Shiyi, deputy general manager of the Guangdong Newpearl Ceramics Group.

"We are not yet ready for a solution to tackle the market-based exchange rate," said Yuan.

Analysts say the wider trading band is like a double-edged sword and export companies may still benefit from the yuan's depreciation.

On the other hand, however, Chinese companies also have to pay for the cost of exchange rate fluctuations if the yuan sees continuous appreciation.

As a leading exporter of air conditioners, Zhuhai Gree Electric Appliances, Inc. has been watching the yuan exchange rate closely, said Xiao Youyuan, general manager of the company's overseas sales arm.

The yuan exchange rate is expected to remain stable as China's trade surplus is narrowing amid a bleak market outlook, Xiao said. "International expectation for the yuan's depreciation is lower than before."

To cope with the fluctuations in the yuan's exchange rate, Fuxin Electronic Technology Co., Ltd., a wine cooler exporter in Guangdong, has come up with a solution to avoid risks.

"We reached deals with banks to stabilize the trading exchange rate with our customers for a certain period, usually one year," said Cao Yunhui, the company's exports manager.

Xiao said banks should develop financial derivative tools to help companies cushion potential exchange rate risks.

Meanwhile, the government is expected to issue warnings against potential risks so enterprises can have time to cope with the floating exchange rate, Yuan said.

The spring session of the Canton Fair, China's largest trade fair, is considered an opportunity for the country's foreign trade enterprises to boost exports. More than 200,000 buyers attend the ongoing session.

The fair is China's largest trade fair and a key indicator of the country's trade and economic development. It has been held every spring and autumn in Guangzhou since 1957.

Editor: Olivia
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