After recording an 8.9-percent slump in exports last July, China overhauled its exchange rate formation mechanism. (Photo : Reuters)
Last week’s plunge in the value of the yuan is expected to benefit China’s export-driven companies, as many factory owners stated that they will profit from the depreciation.
As they become more competitive, factories are seeking a stronger footing overseas, said Wang Li, who is in charge of customs affairs at Luthai Textile Co. in Shandong Province.
Xu Jianping, head of the textile company Zhongxiang in Zhejiang Province, labeled the weakening of the yuan as a "big bonus."
Xu's company, which sells cloth and garments abroad, will incur a profit increase of 100 yuan ($15.65) for every basis point the yuan's exchange rate drops.
Cost-sensitive textile products comprise a major portion of China's export markets and as statistics show, a 1-percent depreciation in the yuan against the U.S. dollar usually yields an average margin rate increase of 2-6 percent.
After recording an 8.9-percent slump in exports last July, China overhauled its exchange rate formation mechanism. However, those industries relying on imported raw materials are on guard for rising import costs, as a devalued yuan may increase their production costs.
For Zhao Huili, trade manager of Shandong-based refiner Luqing Petrochemical Co., they have yet to feel the effects since they are making use of oil from storage.
"We reckon the price of imported crude oil denominated in the U.S. dollar will rise, as well as tariffs," he added.
According to Liu Sai, a customs officer in Jinan, capital of Shandong, the currency fluctuation will reassure trading companies. Liu advised them to arrange production to maximize the gains during the duration of the devaluation to avoid losses.
Zhang Ziaohui, assistant governor of the People's Bank of China, stated that the value of the yuan has already stabilized and returned to market levels after last week's decline.
