Ye Wen'an, general-manager of Fuhua Craft Products Co Ltd, based in Anxi, Fujian province, said the current round of yuan appreciation has posed the biggest challenge ever for his business. [Photo/China Daily]

Stronger yuan adds to pressure on exporters, many turn to hedging

Zhu Guanghua, president of Changle Hana Seimitsu Industry Co Ltd, strode around his noisy machine shop, gesturing excitedly as he described his company's problems with currency fluctuations and settlements.

The recent appreciation of the Chinese currency has been costing his company 800,000 yuan ($129,000) a month, compared with total monthly revenue of about 3 million yuan, said the 55-year-old.

"The yuan has strengthened much more quickly than we expected. The pace of appreciation this year has been stunning, and we are considering hedging arrangements with banks (to protect profits)," he said.

Zhu was a former Taiwan resident. He lived in Japan for more than 20 years before founding the company in the suburbs of the coastal city of Changle, Fujian province in 2005.

His company sells specialized mechanical parts to Japanese companies, with yearly sales of some 40 million yuan.

"The Japanese yen has weakened by more than 20 percent in the past half year against the yuan, which forced us to cut costs by all means and improve profitability to counter the loss."

Like Zhu, other exporters in China are struggling for survival against the backdrop of a stronger yuan, as capital inflows accelerated in past months following major economies' monetary easing policies.

The yuan has gained about 2 percent against the dollar since the beginning of the year.

The outlook for the export sector is grim, with declining competitiveness because of the stronger yuan, said Liu Ligang, chief China economist at the ANZ Banking Group.

China's export growth crashed in May, expanding just 1 percent year-on-year in dollar terms, sharply down from 14.7 percent in April and also weaker than the Bloomberg consensus survey of 7.1 percent.

China's central bank on Friday set the daily yuan reference rate at 6.1607 against the dollar, up 0.01 percentage point from the previous trading day and a 19-year record high.

Beyond currency movements, rising labor and material costs, persistently weak external demand and heavy tax burdens are adding to companies' problems, said Yuan Long, general manager of the Bank of China Xiamen branch.