Stronger yuan, fear of forex losses hurting exporters

Currency's rise affecting business sentiment as traders are not keen to sign long-term contracts for fear of forex losses, commerce ministry says

PUBLISHED : Friday, 17 May, 2013, 12:00am
UPDATED : Friday, 17 May, 2013, 6:15am


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Fast yuan appreciation has hurt exporters, the Ministry of Commerce said yesterday, adding the country's trade outlook is clouded by uncertainties despite the recent upbeat growth.

Ministry spokesman Shen Danyang cautioned against being "overly optimistic" about trade. His comments follow the surprisingly good performance reported by the country's exporters over the past months, fuelling suspicion that speculative funds may have flowed in through trade accounts on expectations of further yuan appreciation.

The yuan has shown sustained appreciation in recent months, with the exchange rate against the US dollar soaring to 19-year highs last month. The yuan has retreated a bit in the past few days after the State Administration of Foreign Exchange tightened rules on banks' foreign exchange holdings and stepped up scrutiny on large capital inflows.

Shen said a stronger yuan had affected business sentiment, making trading firms reluctant to accept long-term orders for fear of foreign-exchange losses.

He said 83.7 per cent of the orders signed at the spring Canton Trade Fair were contracts with terms no longer than six months.

Exporters' profit margins had also been squeezed because of the stronger yuan, he said.

Of the exporters surveyed by the ministry, 73.4 per cent of them forecast their profit might stay flat or even fall this year, according to Shen.

Last month, the mainland's exports grew 14.7 per cent from a year earlier, in stark contrast to the broad weakness in the rest of the region, such as Hong Kong, Taiwan and South Korea.

Economists suspect exporters have been inflating invoices by round-tripping goods through Hong Kong.

Stripping out exports to Hong Kong, the mainland's exports rose 8.5 per cent in the first four months, sharply below an overall growth of 17.4 per cent, Shen said.

"Ultra-high" growth in mainland exports to some regions so far this year might have been driven by "reasonable" and "extraordinary" factors, he said.

The ministry was investigating and analysing trade activities, he said.

The yuan gained 6.1 per cent against the Japanese yen last month as a result of Japan's quantitative easing, which caused mainland China's exports to Japan to fall 1.2 per cent from April last year, Shen said.

Foreign direct investment into the mainland rose 1.2 per cent in the first four months to US$38.34 billion, the ministry said. Last month's direct investment grew 0.4 per cent to US$8.4 billion. The growth was mainly driven by investment from the European Union, which climbed nearly 30 per cent year on year, and that from the United States, which rose 33.2 per cent, Shen said.

However, investment from 10 Asian economies, including Hong Kong, Taiwan and Japan, rose only 0.21 per cent.

Shen said foreign investment would maintain steady growth this year. He cited a recent survey by KPMG that found China as the top sourcing destination for global manufacturers outside their home countries as they increasingly move their research and development units closer to their production base.