Pearl River manufacturers brace for stronger yuan

PUBLISHED : Monday, 30 September, 2013, 12:00am
UPDATED : Monday, 30 September, 2013, 4:46pm

Italian car parts maker Util has seen the yuan appreciate considerably against the US dollar since it set up a factory in the Pearl River Delta six years ago.

Although there was a lull in appreciation between 2008 and 2010, when mainland exporters were battered by the global financial crisis, the yuan has gained 26 per cent against the dollar in the past 10 years and economists expect a further rise of 5 per cent by 2015.

That protracted appreciation has rung alarm bells for thousands of manufacturers in the delta, which, like Util, have turned to the domestic market to mitigate currency risks.

"A stronger yuan will benefit China's economic development," said John Mack, Util's Asia-Pacific chief executive. "It will force the nation's industrial structure to upgrade, specifically labour-intensive sectors, to higher levels of technology and value.

"It will also help expand domestic demand, which in turn will contribute to more stable economic growth."

Util's factory in Nansha, Guangzhou, produces backing plates - a piece of metal used to support disc brake pads for vehicles - and brake shoes - metal pieces used to support drum brakes.

Most are distributed to other car parts suppliers such as Bosch and Honeywell and carmakers.

Mack said the factory supplied the mainland market and mainly sourced raw materials - steel coils - locally, minimising currency risks.

The yuan's value has been a sensitive issue in Sino-US relations, with America long accusing China of setting the exchange rate artificially low to favour its exports, an accusation Beijing has repeatedly rejected.

A poll of 11 economists expected the yuan to strengthen to 5.80 per dollar by 2015 from 6.1196 now.

To increase its competiveness, Mack said Util had boosted automation, patented its designs and technological know-how and developed its own tools and moulds for production.

Mack said Util had transferred technological know-how to the Nansha factory.

To make better use of its 300-strong workforce and improve efficiency, the workers were trained to do various tasks, he said.

"The [delta] still has a future as a production hub," Mack said. "It is moving higher up the value chain and technology level."