Yuan fall boosts use of local parts
DEPRECIATION of the yuan is adding fuel to the trend for manufacturers in China to use more local components in production.
The official China Consumer News predicted this week that the yuan would fall gradually to 10 to the US dollar as China increased imports to make good on its promise to reduce its trade surplus.
This follows the currency's 11 per cent devaluation against the dollar over the past 18 months, as the mainland government tries to move towards currency convertibility.
Yesterday, the yuan's official rate stood at 5.75 to the dollar, with the black-market rate at about 7.6.
Plants in China, including those run by foreign companies and Sino-foreign joint ventures, are tending to increase the proportion of local components in their products, according to S.G. Warburg Securities investment analyst Nick Moakes.
He said the trend had been noticeable in the aviation and coffee-making equipment industries.
Localisation of component sourcing can mitigate the effect of increasing costs and tariffs as well as cutting transport costs, and might raise the chance of manufacturers winning the right to sell a higher proportion of output locally.
Mr Moakes said the trend was becoming more pronounced with China's industrial growth standing at 25 per cent a year. The growth in the production base had meant a more reliable supply and delivery of better-quality components.
However, he said imported components would still play an important role in some industries and cities, particularly coastal areas with easy cargo access, and the hi-tech sector.
