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For China’s Factories, a Weaker Currency Is a Double-Edged Sword

​FOSHAN, China — At first glance, given the way that China controls its currency, the Guangdong Chigo Air Conditioning Company might seem like a winner.

For the past three years, China has allowed its currency, the renminbi, to weaken in value compared with the American dollar. On paper, that should bolster Chigo’s profits. Half of its $1.2 billion in annual sales come from abroad, mostly in dollars, and a weaker renminbi gives Chinese companies an advantage when they sell their products in other countries.


Li Xinghao, founder and chairman of Guangdong Chigo Air Conditioning Company, says a falling renminbi provides only a temporary boost to business.At the Chigo factory. Western retailers are adept at pitting Chinese manufacturers against one another for better prices.Billy H.C. Kwok for The New York Times

At the Chigo factory. Western retailers are adept at pitting Chinese manufacturers against one another for better prices.

Yet the renminbi’s slide has provided only a marginal benefit, said Li Xinghao, the company’s founder and chairman. Big Western department store chains have learned to pit manufacturers against one another — and China is full of air-conditioner manufacturers. When the renminbi weakens, the chains simply tell factory bosses to cut their prices or lose the business to another Chinese factory.

“It only brings benefits for the first month,” Mr. Li said. “For the next month, clients are recalculating what they’ll pay. The supply is much greater than demand, so profits can’t go up.”

The renminbi is likely to be a major topic behind closed doors as Chinese lawmakers gather beginning on Sunday for the annual meeting of the National People’s Congress, the top lawmaking body in the country. President Trump had heavily criticized China during the campaign, saying that Beijing for many years used an artificially weak currency to unfairly help its businesses and steal American jobs.

Mr. Trump has not acted on a campaign promise to label China a currency manipulator, and Steven Mnuchin, the new Treasury secretary, has said the administration is conducting a standard review of China’s currency policy. Still, Mr. Trump has kept up his rhetoric.

Investors and economists widely expect market forces to push the renminbi to weaken even more. And that leaves China with some tough choices. If Beijing lets its currency slide, it will risk worsening relations with Washington.

On the other hand, a weaker currency would help its factories. But economists and business executives are increasingly throwing cold water on that thinking, saying the dynamic has changed: These days, they say, a weaker currency may hurt China and its companies more than it helps.

Chinese officials, who keep a tight grip on the currency’s value, appear to be aware of that. In recent months, they have kept the value from falling to 7 renminbi to the dollar, a level the currency has not seen since May 2008. Currently, it is hovering at about 6.9 renminbi to the dollar. That support is expensive — China has drawn nearly $1 trillion from its huge stash of foreign money to hold its currency steady.

The currency is under pressure to depreciate for a number of reasons. Among them: Families and companies are sending their money out of China, looking for safer places to store it as the country’s growth cools.

China keeps a tight rein on the amount of money that flows over its borders. But between the semiautonomous Chinese city of Hong Kong, which has a separate currency and legal system, and its neighbor on the mainland, Shenzhen, “there are thousands and thousands of smugglers, and they just bring billions of dollars” out of China, said Kevin Lai, the chief economist for Asia excluding Japan at Daiwa Capital Markets. A weaker currency could push more Chinese people and companies to send their money abroad, for fear of further losses if they continue to hold renminbi.


 Date:2017-03-21 09:17:12    From:www.hnssd.com

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