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Chinese Yuan Goes Up; Exporter Profits Go Down

Chinese exporters in the country’s Pearl River Delta are trying to squeeze profits from their exports now that the Yuan has risen against the U.S. dollar. Although orders for April have spiked in the delta region, margins are now thinner because of the rising yuan.

Data collected from some 2,000 companies in the delta area show April exports have increased a substantial 47.3 percent year-over-year, and was up from March 8.5 percent.

In early April the People’s Bank of China tagged the value of the yuan at 6.1980 against the U.S. dollar, the highest since 1993.

Capital inflows into China have also recently increased as a result of the strengthening yuan.  The inflows represent foreign money coming into the country to buy capital assets such as buildings, machinery and land.

China’s State Administration of Foreign Exchange has taken steps to stem the flow of money into the country masquerading as trade, according to Liu Ligang, chief economic analyst at the ANZ Bank, China.

“Some companies have borrowed in dollars, converted them into yuan and bought into yuan-dominated assets, waiting for Chinese currency to strengthen further,” Liu said.  “The inflows have brought about pressures for the yuan exchange.”

Based on official data, Reuters news service estimated the amount of cash coming into China in the first quarter of 2013 at $181 billion. But while the yuan is currently up, Chinese currency could eventually weaken, as cash flows into China stop or decrease to a trickle.

“A weak yuan exchange rate will benefit Chinese exporters who are facing many challenges, including rising labor and production costs and weak demand in the U.S. and European markets,” Liu said.  

 

 

 

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