THE impact of the yen's rise is being felt by the Chinese business community, not just central bankers who are concerned about the impact on the country's finances. Among the mainland victims of the strengthening yen against the United States dollar was Shanghai Chlor-Alkali, whose profits last year were slashed by higher interest payments on outstanding loans of seven billion yen (about HK$651 billion). Interest charges rose to between 40 million yuan (about HK$36.71 million) and 50 million yuan, which compares with a net profit of 200.68 million yuan, up a thin 4.5 per cent. As the company's turnover surged 45 per cent over the previous year, the impact of the yen's rise on net profits is obvious. But it was not the bruising impact of the sumo-sized yen which was seen as the major culprit by chairman Xu Rongyi. He preferred to attribute the profit fall to soaring raw material costs, triggered by China's racing inflation, and rising tax expenses, under the new tax system. Raw material and production costs, including industrial salt, electricity and ethylene, soared by 15 to 20 per cent last year. Adding to the burden of rising costs, the company received no preferential treatment under the new tax ruling, beginning from last year, and had to pay 36 million yuan more in taxes. Fortunately, raw material costs are not expected to rise rapidly this year, with the electricity rate set by the central government. Since the market for the company's major product, polyvinyl chloride (PVC), is still promising, it is confident enough to predict a sales growth of 12 per cent and profit rise of 9.6 per cent this year. Indeed, foreign exchange risk remains the company's greatest worry just in case the yen continues to rise, as the Japanese currency has made up the largest portion of its foreign debt. Chlor-Alkali's current outstanding borrowings amount to 2.2 billion yuan, comprising foreign exchange loans of seven billion yen and US$20 million.