Zhang Yang, the driving force behind a major Sino-foreign joint venture knitwear exporter in East China's Zhejiang Province, has cultivated a habit of opening his computer and checking the daily exchange rate when he enters his spacious office.
There was no rest for Zhang's heart on Feb. 20 when the Chinese currency reached a new high, with a central parity rate of 7.1452 yuan against one U.S. dollar. It was the 17th record high for the yuan since the beginning of this year.
Zhang was understandably disturbed by the appreciation of the yuan, also known as the renminbi, because it had a strong impact on the performance of his firm.
"We keep an average profit margin at about 3 percent from exporting garments. We would struggle through it if the yuan remains to stand so high."
A one percent appreciation in the currency results in a loss of two percent in profit margin in the labor-intensive textile industry, the bulk of China's foreign trade, said Guotai Junan Securities Research Institute statistics. The yuan has appreciated more than 13 percent since it was de-pegged from the U.S. dollar in July 2005. It climbed 6.9 percent against the greenback in 2007 and has already appreciated more than 2 percent so far this year. Zhang, however, was well prepared to face up to the growing export risks rather than await doom. His way out was to divert many of his orders to the domestic market and sell the products as "export goods withdrawn for sale on home market" shops.
"These days, exported garments make profit largely on the basis of volume. Sales in the home market create higher profits, normally hitting 10 to 15 percent," said Zhang, glancing away from his computer screen, hastening to issue more orders of woolen sweaters and underwear to Hangzhou, the Zhejiang Province capital.