Thursday, October 30, 2008

A Stronger Yuan - a benefit for some

Oct 29 2008 (TodayOnline)

Businesses with contracts in yuan see boost in earnings

THE stronger yuan has shut down some Chinese exporters but several companies in Singapore are benefiting from the rise in the value of China’s currency.

Business owners are earning more — even with the same level of sales — as the stronger yuan is worth more in Singapore dollars.

Mr Fong Kah Kuen, chief operating officer from Xpress Holdings, said that the impact from the weaker exchange rate is positive, as about 55 per cent of his company revenue comes from China.

Mr Fong explained that business contracts in China are often denominated in yuan and when converted back to the weaker Singapore dollar, earnings will be more. Mr Fong said about 80 per cent of his printing business comes from China.

Another company benefiting is Qian Hu Corporation, which exports ornamental fish to various countries, including Malaysia and Thailand as well.

Managing director Kenny Yap said: “It is to our advantage, as we export more to China than import from there, and the weaker Singapore dollar means that our products become more attractive to the Chinese buyers.”

But not all businesses have benefited. In fact, some Singapore firms have been hurt by the currency fluctuation.

Ms Lynn Ho-Tan, sales and marketing director from Bodynits International, said that the cost of products has increased due to the softening Singapore dollar, which has led to a narrower margin.

But the impact has been softened because of a diversification in trading currencies such as US dollars, which has strengthened over the past few weeks.

For several months, small- and medium-sized companies in China have been reported to be cutting back their operations because of the high cost of materials, issues of refinancing and the rapid appreciation of the Chinese currency.

High productions costs and the expensive yuan make exports less competitive and this has led to a domino effect, with thousands of such companies shutting down.

On the tourism front, travel agencies are seeing a fall in tourists visiting China, but the weak exchange rate is not the main reason for the dip.

“Travellers to China has been affected the past few months, not solely due to the Singapore dollar weakening against the yuan but also due to other factors such as spiked hotel rates in Beijing during the Olympic Games, the Sichuan earthquake and continuing aftershocks, and the latest melamine scare. We have seen an overall dip in volume of travellers to China for the past three months by roughly 20 per cent,” said Ms Jane Chang at Chan Brothers Travel.

It might be assumed that Chinese nationals working here, earning in Singapore dollars and sending money back home, might be feeling the pinch – but this is not true for all.

Ms Liu Xinyi, a banking executive, told TODAY that she does not feel any impact because “things are still affordable back home”. However she said that it might be wiser to hold US dollars in future, in the expectation of the yuan depreciating against it.

Mr James Ye, a stockbroker working here since 2007, said that he sees no great difference in the exchange rates, although many of his friends have gone back to China because of inflation here.

But for blue-collar workers such as Mr Ma Wuxing, the weaker Singapore dollar means less money is remitted back home. “Now that the exchange rate has fallen so drastically, I am getting paid the equivalent amount when I am working back in China for a less tedious job,” said the construction worker.


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