China's Currency Breaks Through Key Level in Trade Against the Dollar; Exporters Feel Squeezed.
China's currency nudged past 7 yuan to the U.S. dollar Thursday, a milestone bound to please Beijing's trading partners and dismay exporters struggling to remain competitive in overseas markets. Late in the day, the dollar was at 6.9913 yuan on the over-the-counter market, after dipping to an all-time low of 6.9907. It closed at 7.0017 on Wednesday.
The trading Thursday marked the first time the Chinese currency has ventured below the 7 yuan mark since the government loosened the unit's peg to the dollar in 2005. The yuan has gained about 18 percent since then.
That has made Chinese-made products more expensive overseas, while shrinking the yuan-denominated value of profits from exports. An acceleration recently in the yuan's gains has been squeezing China-based exporters, including multinationals, at a time when they already are wincing at surging costs for labor, energy and materials.
"Our costs keep rising and the dollar is falling so we make less money than ever before," said a quality control manager at EI Global, an exporter of small promotional items. "I heard my boss might even switch away from exports," said the manager, who gave only his surname, Tao.
Beijing limits the yuan to a narrow trading band, contending that restrictions are needed to protect China's developing financial industries. The United States wants the yuan to appreciate faster, and some American lawmakers are calling for punitive tariffs on Chinese imports. Washington reported a $256.3 billion trade deficit with China last year, its highest on record with any country.
During a visit to Beijing last week, U.S. Treasury Secretary Henry Paulson reiterated calls for Beijing to let the yuan trade more freely. China has been noncommittal, vowing only to keep the yuan steady while moving gradually toward a more open exchange regime.
A stronger yuan makes imports of key commodities like crude oil less costly in local terms. But for some industries, the foreign exchange losses are outstripping the gains. "These are hard times for us," says Wei Yaoting, a textile trader in Shanghai that exports large shipments to the United States.
A typical U.S. order, received last July and delivered in November, was not paid for until February. Over those seven months, the dollar-denominated payment declined in value as the yuan rose. "We end up swallowing the losses," said Wei, manager of Shanghai HTC Holdings Import & Export Co. "The more exports, the bigger the losses. We just break even," Wei said. "We're even considering giving up selling to foreign markets that trade in U.S. dollars."
Although most foreign trade, in China and elsewhere, is denominated in dollars, companies increasingly are setting contracts in euros or British pounds to avoid foreign exchange losses, said Ma Xinzheng, deputy chief editor of WebTextiles.com, an industry research group.
A majority of 1,000 textile traders responding to a survey released this week by WebTextiles said they were setting deals in other currencies. "Some traders try their best not to deal in U.S. dollars," Ma said.
The reluctance to rely on U.S. dollars is not confined to Chinese traders. It's also seen in the increasing use of sovereign wealth funds to diversify investments beyond U.S. dollar holdings, billionaire financier George Soros noted in a conference call with journalists Thursday. "There definitely has been a decline in the status of the dollar as the unquestioned monetary reserve," Soros said.
China Raises 2007 GDP Growth to 11.9 Percent
China's economy grew at a searing rate of 11.9 percent in 2007, exceeding initial estimates and putting the country closer to overtaking Germany as the world's third-largest economy.
A report seen Thursday on the Web site of the National Statistics Bureau put China's gross domestic product in 2007, in nominal terms, at 24.95 trillion yuan, or $3.61 trillion (2.3 trillion euros) at current exchange rates.
The bureau's earlier estimate for last year's GDP growth was 11.4 percent. It also raised the estimate for China's GDP growth in 2006 by 0.5 percentage points to 11.6 percent. Germany earlier reported its growth in 2007 at 2.5 percent growth, which would put its annual output at over euro2.4 trillion, or $3.8 trillion.
Officials in China have balked at commenting on when China might overtake Germany in output, noting that China remains much poorer per person, with its population of more than 1.3 billion people. China routinely issues revisions of key economic data. The change announced Thursday reflects an increase in output in the services sector.
China's economic growth, which has topped 10 percent for the past five years, is forecast to moderate to about 9 percent this year if export growth falls as expected due to a global slowdown resulting from the U.S. credit crisis.
Beijing's primary concern for most of this decade has been with slowing rather than stimulating growth. The central bank has repeatedly raised interest rates seeking to cool price pressures that pushed inflation to 8.7 percent in February, its highest level in nearly 12 years.
China's currency nudged past 7 yuan to the U.S. dollar Thursday, a milestone bound to please Beijing's trading partners and dismay exporters struggling to remain competitive in overseas markets. Late in the day, the dollar was at 6.9913 yuan on the over-the-counter market, after dipping to an all-time low of 6.9907. It closed at 7.0017 on Wednesday.
The trading Thursday marked the first time the Chinese currency has ventured below the 7 yuan mark since the government loosened the unit's peg to the dollar in 2005. The yuan has gained about 18 percent since then.
That has made Chinese-made products more expensive overseas, while shrinking the yuan-denominated value of profits from exports. An acceleration recently in the yuan's gains has been squeezing China-based exporters, including multinationals, at a time when they already are wincing at surging costs for labor, energy and materials.
"Our costs keep rising and the dollar is falling so we make less money than ever before," said a quality control manager at EI Global, an exporter of small promotional items. "I heard my boss might even switch away from exports," said the manager, who gave only his surname, Tao.
Beijing limits the yuan to a narrow trading band, contending that restrictions are needed to protect China's developing financial industries. The United States wants the yuan to appreciate faster, and some American lawmakers are calling for punitive tariffs on Chinese imports. Washington reported a $256.3 billion trade deficit with China last year, its highest on record with any country.
During a visit to Beijing last week, U.S. Treasury Secretary Henry Paulson reiterated calls for Beijing to let the yuan trade more freely. China has been noncommittal, vowing only to keep the yuan steady while moving gradually toward a more open exchange regime.
A stronger yuan makes imports of key commodities like crude oil less costly in local terms. But for some industries, the foreign exchange losses are outstripping the gains. "These are hard times for us," says Wei Yaoting, a textile trader in Shanghai that exports large shipments to the United States.
A typical U.S. order, received last July and delivered in November, was not paid for until February. Over those seven months, the dollar-denominated payment declined in value as the yuan rose. "We end up swallowing the losses," said Wei, manager of Shanghai HTC Holdings Import & Export Co. "The more exports, the bigger the losses. We just break even," Wei said. "We're even considering giving up selling to foreign markets that trade in U.S. dollars."
Although most foreign trade, in China and elsewhere, is denominated in dollars, companies increasingly are setting contracts in euros or British pounds to avoid foreign exchange losses, said Ma Xinzheng, deputy chief editor of WebTextiles.com, an industry research group.
A majority of 1,000 textile traders responding to a survey released this week by WebTextiles said they were setting deals in other currencies. "Some traders try their best not to deal in U.S. dollars," Ma said.
The reluctance to rely on U.S. dollars is not confined to Chinese traders. It's also seen in the increasing use of sovereign wealth funds to diversify investments beyond U.S. dollar holdings, billionaire financier George Soros noted in a conference call with journalists Thursday. "There definitely has been a decline in the status of the dollar as the unquestioned monetary reserve," Soros said.
China Raises 2007 GDP Growth to 11.9 Percent
China's economy grew at a searing rate of 11.9 percent in 2007, exceeding initial estimates and putting the country closer to overtaking Germany as the world's third-largest economy.
A report seen Thursday on the Web site of the National Statistics Bureau put China's gross domestic product in 2007, in nominal terms, at 24.95 trillion yuan, or $3.61 trillion (2.3 trillion euros) at current exchange rates.
The bureau's earlier estimate for last year's GDP growth was 11.4 percent. It also raised the estimate for China's GDP growth in 2006 by 0.5 percentage points to 11.6 percent. Germany earlier reported its growth in 2007 at 2.5 percent growth, which would put its annual output at over euro2.4 trillion, or $3.8 trillion.
Officials in China have balked at commenting on when China might overtake Germany in output, noting that China remains much poorer per person, with its population of more than 1.3 billion people. China routinely issues revisions of key economic data. The change announced Thursday reflects an increase in output in the services sector.
China's economic growth, which has topped 10 percent for the past five years, is forecast to moderate to about 9 percent this year if export growth falls as expected due to a global slowdown resulting from the U.S. credit crisis.
Beijing's primary concern for most of this decade has been with slowing rather than stimulating growth. The central bank has repeatedly raised interest rates seeking to cool price pressures that pushed inflation to 8.7 percent in February, its highest level in nearly 12 years.
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