Yuan's rise less good, more bad for people
Updated: 2008-01-16 07:04
"It's hard for us to hedge against the risks, though we've seen a sharp decline in our profit because of the fast rising yuan," said Liu, of China National Electric Equipment Corporation. She refused to give her full name.
Apart from the losses caused by reduced tax rebates, she said, the company would also suffer because of the dollar-denominated contract.
In China, financial institutions offer limited number of services to help enterprises tackle currency risks, and they are not competent enough to navigate a company through the rapidly changing market.
"We must first get the approval of insurance companies or banks, and the procedure is complicated," she said. "We seldom use them (financial derivatives) to avoid losses."
The smaller firms don't have that easy an access to such financial tools to manage their foreign exchange risks, said Dong Yuping, a senior economist with the Institute of Finance and Banking, affiliated to the Chinese Academy of Social Sciences. "They would be suffering the most (because of the rising yuan)."
Wang Bo contributed to the story
|
Renminbi down the road China has been trying for over a decade to reform its currency regime to set up a more market-oriented exchange rate formation system. The yuan had been pegged to the dollar during the planned economy days before 1979. From the late 1970s, when it opened its economy to the outside world, China has adopted a dual exchange rate system: a fixed official exchange rate and a parallel exchange rate for trade settlements. Later, it introduced another rate system for domestic foreign exchange transactions between enterprises holding foreign currencies. All these weakened the yuan further. In the end of 1993, the exchange rate of yuan was 5.8 against the dollar, down from 1.58 a dollar in 1979. In 1994, the Chinese government unified the exchange rates and adopted a managed floating foreign exchange rate regime based on market conditions. The yuan was depreciated by a real 6.7 percent to reflect market supply and demand relations. After that, the yuan reversed its downward trend and rose 4.8 percent from 1994 to 1997. During the 1997-98 Asian financial crisis, China was under tremendous pressure to depreciate the yuan. But to help its Asian neighbors overcome the crisis, China pledged not to do so and fixed it at 8.28 against the dollar. That helped anchor the struggling Asian economy. On July 21, 2005, China announced that it was depegging the yuan from the dollar and shifting it to a market-based exchange rate regime with a basket of foreign currencies. |
|
|
|
||
|
||
|
|
|
|