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Backgrounders> Business
UPDATED: February 12, 2007 NO.7 FEB.15, 2007
Gains and Pains From RMB Appreciation

The appreciation of China's RMB means one dollar can be exchanged for fewer yuan. Therefore, as for domestic exporters, the one dollar export will take in less yuan. As a result, the profitability of exporters will be affected. From the perspective of domestic importers, they will be glad to pay less for the same import goods, which means the import cost will be reduced and profitability increased. Due to the differences in industries and cost structures, the influence of RMB appreciation on Chinese importers and exporters differs.

Export Industries

Textiles: The RMB appreciation is hitting Chinese textile exports the hardest. Textiles have always comprised the biggest exporting industry for China, and 50 percent of Chinese textile products rely heavily on exports. However, the largest proportion of textile exports are based on low labor costs and a pricing edge, and the profit is low. According to a webtextile.com estimation, every 1 percent appreciation of the RMB will cause a 2-6 percent drop in textile commodity profit. From January to October 2006, the overall profitability of textiles was 3.9 percent. If the RMB appreciates 5 percent, the profitability may drop by 10 percent at least.

Home Electrical Appliances: The home appliance export industry will suffer heavily. China has become a major production base for international home appliance giants thanks to its low manufacturing costs. Overseas orders are a major source of sales revenue. The RMB appreciation has posed a considerable negative impact on home appliance manufacturers and will further lower their profitability levels.

Import Industries

Paper making, iron and steel, petrochemical, aviation and auto industries: The RMB appreciation has reduced import cost, and many raw materials in these industries are imported. This will cause a positive impact on the abovementioned industries. The aviation industry can benefit much, for instance, because on the one hand, fuels are mostly imported, and on the other, indebted aviation companies pay back their creditors in dollars. The RMB appreciation could thus bring more revenue to the aviation industry.

Raw materials processing industry: The slight RMB appreciation won't affect the import of raw materials like coke, textile materials and non-ferrous metals, as their prices are already among the cheapest in the world. 

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