The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Falling greenback costs shipbuilders 4.5b yuan
Profits of mainland shipbuilders were eroded by about 4.5 billion yuan in the first half because of the rising value of the yuan against the US dollar as most buyers paid in the greenback.
To stem losses, some shipyards attempted to settle payments in euros. In the first six months, US$5.49 billion worth of vessels were exported from the mainland.
'Assuming all the overseas contracts signed two years ago were denominated in US dollars, profits at Chinese shipyards were reduced by 4.5 billion yuan because of the yuan's appreciation,' Zhang Weijing, a professor at Shanghai Jiao Tong University, said yesterday.
The mainland currency has appreciated to about 7.40 yuan against the dollar from 8.23 yuan since the country adapted a more flexible exchange rate mechanism in July 2005.
'We are negotiating with our clients to settle part of the payments in euros, say, 40 per cent of the contract price, with the balance in US dollars,' said Ji Fenghua, chairman of Nantong Mingde Heavy Industry.
The Tongzhou-based shipyard also signed contracts using a fixed exchange rate and increased the first instalment to ease the impact, although those came with certain concessions. 'Sometimes we have to lower prices to get the customers to agree to the arrangement,' he said. 'Our pricing power is not strong even though the market is good.'
Nie Chenggen, vice-president of China State Shipbuilding Corp, the nation's largest shipbuilding conglomerate, said it was not easy to ask clients to pay in euros.
Beijing has targeted to replace South Korea as the world's biggest ship-making country by 2015, with estimated 20 per cent composite growth rate in completed units between this year and 2011.
However, Mr Zhang warned of a supply glut as global demand for new ships is about 70 million tonnes a year but outstanding orders stood at 300 million tonnes.