World business people in 'gold rush' to China trade fair

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American businessman Peter Anderson hurries at the Canton Fair, China's largest trade fair, where he and his colleagues will have to visit dozens of potential business partners.

"I expected price hikes after all the media coverage about yuan appreciation. But the prices are stable," Anderson says, after two days of touring and bargaining at the fair that opened Friday.

Yuan appreciation has become a major concern for the tens of thousands of traders who look for business opportunities in the 1.33-million-square-meter venue of the 108th Canton Fair, officially known as the China Import and Export Fair. But many of them remain confident about China's trade.

"China will find a way," said architect Levnet Akdeniz, who had come to buy construction materials for his company in Greece. "The country will not allow sudden fluctuations of the yuan to hurt its economy."

"As long as the yuan does not appreciate too abruptly and the companies are given enough time to adjust to the changes, it will not have too much impact on the industry," said Liu Guizhong, head of the overseas marketing department of Glanz, a leading Chinese manufacturer of home appliances.

"As our government becomes more experienced in handling currency issues, we believe China will not easily yield to foreign pressure," Liu added.

Further, some leading Chinese manufacturers are confident that the appreciation of the yuan would not affect their competitiveness in the global market.

"We have 29 manufacturing bases in the world. As a large part of our design and production are localized in overseas markets, the fluctuation of the yuan would not bring much impact," said Diao Yunfeng, head of the overseas department of Haier, a leading Chinese maker of white goods.

Worries from smaller traders

Compared to top Chinese home appliance manufacturers like Aux, Glanz, Gree, and Midea, which have a significant stake in the global market and larger say in pricing, smaller businesses are far more worried about the appreciation.

"We are under great pressure. Should the exchange rate rise rapidly, many of us will be out of business," said Dai Chao, export manager of Guangdong Macro Gas Appliances Co. Ltd., a company that sells gas appliances to east European and south American countries.

Dai's concern is echoed by many small and medium-sized companies at the fair, which make up about 70 percent of all 23,599 registered exhibitors.

"An abrupt appreciation of the yuan would devastate the smaller exporters whose profit margin mostly ranges from 2 to 5 percent," said Liu Jianjun, spokesman for the fair.

The exchange rate between the yuan and U.S. dollar has reached the maximum expectation of the Chinese TV manufacturing industry. Each extra percent brings great difficulty for exporters and the industry can not take any further appreciation, said Zheng Zhiqiang, assistant general manager of the marketing department of Skyworth, a major Chinese TV manufacturer.

Chinese manufacturers have considered yuan appreciation in pricing since early this year, resulting in a stable price level so far. But the appreciation will soon exceed their expectations and lead to higher prices for overseas consumers, said Xiao Youyuan, head of the overseas sales branch of Gree, a leading Chinese electric appliance maker.

The construction materials industry is one of the most impacted industries when yuan appreciation occurs. "Our industry is very sensitive to changes of exchange rates. Exchange rate rises, price rises," said Yuan Xin, head of Hongyu Ceramics, a manufacturer of tiles in Guangdong.

"Other than raising prices, we also have to avoid long-term contracts and negotiate fixed exchange rates with the banks," Yuan added. "When it gets really bad, we reduce exports and focus on the domestic market."

Most of the exporters at the fair say they are cautiously confident about their business and China's trade in general. But analysts say complaints on the appreciation may surge during upcoming sessions of the fair when more sensitive industries, such as furniture, stationery and textiles, will be featured.

The fair, running from Oct. 15 to Nov. 4, has three five-day sessions and two two-day breaks. The ongoing session features home appliances, machinery, auto parts and other items.

Deals worth over one billion U.S. dollars were made Friday, the fair's opening day. More than 65,000 buyers visited the fair on Friday and Saturday. Many exporters say business is on the rise, although the number of buyers seemed to have dropped slightly.

So far, the Canton Fair, a barometer of China's trade, is showing positive trends, said Xiao Yaofei, economics professor with Guangdong University of Foreign Studies.

"Positive expectations on the global economy and additional U.S. and Japanese economic stimulus policies may have contributed to the rise of export deals in the fair," he said, "But we need to wait for more figures from the fair to draw a conclusion."

Yuan no scapegoat for US woes

The U.S. Treasury Department announced Friday its decision to delay the publication of its semiannual international economic and exchange rate policies report to the Congress until G-20 leaders meet in the Republic of Korea in November.

That piece of news did not soothe traders' worries on yuan appreciation.

"Despite the delay of the report, it is obvious that some countries are using currency as a tool for political gains. They are certain to raise the issue again in the future," said Wu Mingang, head of the overseas department of New Pearl Ceramics Group.

Analysts say China's currency policy has been stigmatized by some U.S. politicians who are trying to use it as a scapegoat for the weak economy and job losses in the United States as midterm elections approach.

"The United States can't use domestic reasons to pass on its domestic employment and economic growth problems (to other nations)," the Chinese Commerce Ministry Spokesman Yao Jian told reporters in Beijing last week.

"Pushing for appreciation of the yuan for political gains will only hurt the global market. Exchange rate changes should be based on the real conditions of China's economy and the trade market," said Su Jing, another official with the Ministry of Commerce, at the opening of the Canton Trade Fair.

"China is at a crucial stage of restructuring its economy. Abrupt fluctuations of the yuan would not only hurt the country's economy but also worsen the investment environment in China and disrupt world economic development," Su added.

While addressing the Sixth China-European Union Business Summit in Brussels early this month, Chinese Premier Wen Jiabao promised that China would stick fast to the reform of the yuan exchange rate mechanism. The reform involves developing a managed floating exchange rate system based on the market supply and demand and adjusted to a basket of foreign currencies, to gradually allow more flexibility in the yuan exchange rate while maintaining its basic stability on a reasonable and balanced level.

The yuan has appreciated by an accumulated 55 percent in terms of the real effective exchange rate since China initiated the reform of the yuan exchange rate mechanism in 1994.

China further deepened the reform of the yuan exchange rate mechanism in July 2005. The yuan has appreciated by 22 percent against the U.S. dollar since then. During this period of time, however, China's trade surplus against the United States has still increased by a large margin.

"If the yuan exchange rate is unstable, enterprises will also be unstable. So will be employment, and society in general. Should China have problems in economy and society, it will be disastrous for the world," said Premier Wen.

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