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Chinese exporters fear new wave of exchange rate fluctuations

When Zhu Bin first showed his handcrafted ceramics at the 2004 China Import and Export Fair in Guangzhou, he signed export contracts worth more than 200,000 U.S. dollars, in excess of 1.6 million yuan then.

His success resulted in him becoming general manager of a pottery company based in Kunming, capital of southwest China's Yunnan Province. But his initial profits now seem like a hard act to follow.

Those 2004 contracts would worth less than 1.4 million yuan with the present yuan-dollar exchange rate.

Before the Chinese government switched the Renminbi, the Chinese currency, from the U.S. dollar peg to a basket of currencies in July 2005, the greenback had the Chinese nickname, "meijin", or "beautiful gold," as acquiring dollars was like prospecting for gold.

Zhu says he is still in the "gold-digging army," but the pressure to remain competitive is mounting as exporters find their goods more expensive due to yuan appreciation and the impact of the economic crisis on global monetary systems, the U.S. dollar in particular.

For almost eight years, the dollar's value against other currencies has fallen at an average annualized rate of 3.5 percent, a point exporters want to press when U.S. President Barack Obama visits China.

"A devalued U.S. dollar means greater risks and trouble for exporters," Zhu says. "Before 2005, I didn't have to worry about RMB exchange rate fluctuation, but now things are different."

For a decade and a half after China launched the reform of foreign exchange administration systems in 1978, acquiring U.S. dollars was top priority due to the country's trade deficit and shortage of foreign exchange reserves.

Cao Xiaojian, deputy general manage of Jiangsu SAINTY International Group, recalls the huge demand: "At that time, the U.S. dollar symbolized 'strength and scarcity', a position that is completely unlike now."

According to the People's Bank of China, the central bank, China's foreign currency reserve exceeded 2.2 trillion U.S. dollars by the end of September.

"This is a huge change," says Professor Xiao Yaofei, an international trade expert at Guangdong University of Foreign Studies. "So it is with Western countries' attitudes towards the Renminbi."

Xiao says China's efforts to hold a stable RMB-dollar exchange rate during the 1998 Asian financial crisis earned high marks from Western governments, who switched to pressuring China to let the yuan appreciate.

In July 2005, China started building a more resiliently managed RMB exchange rate mechanism based on market supply and demand and adjusted in relation to a basket of major foreign currencies.

The RMB has since gained more than 21 percent against the greenback.

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