• Compiled From Staff Reports


From electronics makers to fishing companies, China’s decision Thursday to abandon the yuan’s peg to the dollar will affect a wide range of Japanese businesses over the long term, observers say.

However, for now, the impact will be limited, business executives and economists said Friday.

Under pressure — especially from the United States, worried about its mounting trade deficit with China — the People’s Bank of China revalued the yuan to 8.11 to the dollar, effectively boosting its value by 2.1 percent.

It has set the yuan to trade against a basket of currencies instead of just the dollar.

“Macroeconomics will shift away from the U.S. to Asia and, in the long-term, this is good news for Japan,” said Jae Lie, chief operating officer of Hong Kong-based Xinhua Finance Ltd.

Putting the yuan up against the currency basket means China effectively will need to buy more yen and euros, where it used to buy dollars, Jae said.

China had said it will not disclose what currencies are in the basket or in what proportion.

The dollar’s influence will fall in Asia, and more Asian companies may opt to do business in local currencies, Jae said.

But over the short term, the 2 percent revaluation will have virtually no impact on Japan, he and other economists said.

In theory, a stronger yuan means some pain and gain for Japan’s largest exporters.

Their factories in China will be able to import goods and components from Japan for less, and sell them locally at competitive prices.

But products made in China will sell for a higher price when shipped offshore.

Right now, the positives and negatives cancel each other out, said a spokesman for Matsushita Electric Industrial Co., which expects 1 trillion yen in sales in 2006 in China.

The company’s operations in China are funded in yuan, he said, adding that the revaluation will not affect company earnings.

The value of Matsushita’s imports into China of products and parts is roughly equal to the value the company exports out of China, he said.

Japanese automakers said the immediate impact would be negligible at worst and positive at best.

Profits logged in China will turn into gains when repatriated in Japan, Nissan Motor Co. President Carlos Ghosn said.

The carmaker’s plants in China import most of their parts from Japan. The stronger yuan will mean it can procure those parts for less, and then sell cars at competitive prices in the local market, a Nissan official said.

Honda Motor Co., the first automaker to export cars from China, began exporting the Jazz compact, called the Fit in Japan, to Europe from its Guangzhou plant last month.

The yuan’s rise will hurt Jazz exports, but the projected export volume for 2005 is also small, only just 10,000 units, said Honda spokesman Tetsuya Ikeda.

Any losses will be more than offset by gains from cheaper parts imports for vehicles to be sold in China, Ikeda said.

“I believe there will be a further revaluation of the yuan,” he said. “We will increase efficiency and local procurements to cope.”

Many market analysts agree with Ikeda’s prediction that the yuan will rise further.

The small 2.1 percent increase in the value of the yuan makes it more than likely that another boost will be made before year’s end, said Seiji Adachi, senior economist at Deutsche Securities Ltd.

The yuan would need to appreciate by 15 percent to erase the U.S. trade deficit vis-a-vis China — $162 billion in 2004 — and pressure from Washington is expected to persist, he said.

But some companies are not as confident that they will be able to cope if the yuan rises more.

A spokesman at a medium-size consumer electronics maker based in Osaka, with annual sales of 400 billion, yen said the firm might speed up plans to move factories out of China to other parts of of Asia if the yuan continues to gain in value.

About 70 percent of its production of DVDs and liquid crystal displays is based in China, the spokesman said.

“We just won’t be able to absorb the increased costs,” he said.

“The companies that will get hurt are businesses that have come to rely on cheap production and labor costs in China, like electronics and apparel makers,” Deutsche Securities’ Adachi said.

A 10 percent gain in the yuan would cause Japanese manufacturers’ sales to fall 0.5 percent, according to the Ministry of Economy, Trade and Industry. About 13 percent of all of Japan’s exports are to China.

In the unlikely event the Chinese government allowed the yuan to appreciate too quickly, chaos would erupt in the short-term, but the damage will be limited, said Ryutaro Kono, chief economist at BNP Paribas.

“Japanese manufacturers would merely shift production elsewhere over the medium to long term,” Kono said.

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