China abruptly allowed its currency to appreciate by a modest 2percent on July 21, but said its exchange rate will not float by abig margin. The yuan is pegged at around 8.28 to the US dollar since 1994.
Yuan rise was first perceived as a deadly blow in east China's Zhejiang Province, one of the country's leading exporting bases and home to a multitude of suppliers that "flood" the world the market with cost-effective garments, shoes, toys and diverse othermerchandises.
In the first five months of this year -- the most recent time that figures are available, the province reported 16.1 billion US dollars of trade surplus, the biggest among all Chinese provinces and municipalities. The province's exports in the five months period totaled 28 billion US dollars, according to the provincial foreign trade and economic cooperation department.
"Most foreign traders see a dim future now that the appreciation of yuan will weaken the competitiveness of Chinese export products and may even affect the very existence of many trading firms," said an official in charge of foreign trade based in the provincial capital Hangzhou.
"Again, textile and garment firms will suffer the most," he said in an interview with Xinhua Thursday, but declined to be named.
Textile industry: between hammer and anvil
Chen Chao, whose privately-owned business exports garments and toys to Europe, America and the Middle East, spent hours on his calculator the night he learned of the yuan appreciation.
"Before the yuan move, the average gross margin was only 0.5 yuan -- or six US cents -- for each US dollar worth of export," hetold Xinhua. "That meager profit will be slashed by one third withyuan's two percent revaluation."
Chen said he had to renegotiate prices with his clients. "I'll have to suffer the losses if they don't accept any price hike."
He said China's textile industry is in hot water, troubled by the yuan appreciation and the United States restrictions on exports of certain lines of Chinese products.
Despite several rounds of talks, China has not been able to strike a much desired, European Union-type agreement with the US pertaining to its textile exports.
"The US used to be one of the largest destination markets of Chinese textile products," said Chen. "Today, however, many companies dare not receive further orders from their US clients."
Despite a hard-won deal reached between China and EU on June 11, uncertainties abound in Sino-EU textile trade as well because of the mutually agreed restrictions on certain exports and yuan's rise against the euro, Chen said.
The China Chamber of Commerce for Import and Export of Textileshas predicted that in the second half of this year, about 30 percent of China's 19 million textile workers will lose their jobsbecause of the restrictions from the EU and the United States.