The double-edged sword of the devaluation of the renminbi makes it difficult for Chinese companies

2017-03-02 「 10988 words / 22 minute 」
The double-edged sword of the devaluation of the renminbi makes it difficult for Chinese companies.jpg
FOSHAN, China — At first glance, given the way that China controls its currency, the Guangdong Chigo Air Conditioning Company might seem like a winner.
For the past three years, China has allowed its currency, the renminbi, to weaken in value compared with the American dollar. On paper, that should bolster Chigo’s profits. Half of its $1.2 billion in annual sales come from abroad, mostly in dollars, and a weaker renminbi gives Chinese companies an advantage when they sell their products in other countries.
Yet the renminbi’s slide has provided only a marginal benefit, said Li Xinghao, the company’s founder and chairman. Big Western department store chains have learned to pit manufacturers against one another — and China is full of air-conditioner manufacturers. When the renminbi weakens, the chains simply tell factory bosses to cut their prices or lose the business to another Chinese factory.
“It only brings benefits for the first month,” Mr. Li said. “For the next month, clients are recalculating what they’ll pay. The supply is much greater than demand, so profits can’t go up.”
The renminbi is likely to be a major topic behind closed doors as Chinese lawmakers gather beginning on Sunday for the annual meeting of the National People’s Congress, the top lawmaking body in the country. President Trump had heavily criticized China during the campaign, saying that Beijing for many years used an artificially weak currency to unfairly help its businesses and steal American jobs.
特朗普尚未兑现竞选时的承诺,将中国列为汇率操纵国,新任财政部长史蒂文·努钦(Steven Mnuchin)则表示,联邦政府正在对中国的汇率政策进行标准评估。但特朗普的口风并没有变。
Mr. Trump has not acted on a campaign promise to label China a currency manipulator, and Steven Mnuchin, the new Treasury secretary, has said the administration is conducting a standard review of China’s currency policy. Still, Mr. Trump has kept up his rhetoric.
Investors and economists widely expect market forces to push the renminbi to weaken even more. And that leaves China with some tough choices. If Beijing lets its currency slide, it will risk worsening relations with Washington.
On the other hand, a weaker currency would help its factories. But economists and business executives are increasingly throwing cold water on that thinking, saying the dynamic has changed: These days, they say, a weaker currency may hurt China and its companies more than it helps.
Chinese officials, who keep a tight grip on the currency’s value, appear to be aware of that. In recent months, they have kept the value from falling to 7 renminbi to the dollar, a level the currency has not seen since May 2008. Currently, it is hovering at about 6.9 renminbi to the dollar. That support is expensive — China has drawn nearly $1 trillion from its huge stash of foreign money to hold its currency steady.
The currency is under pressure to depreciate for a number of reasons. Among them: Families and companies are sending their money out of China, looking for safer places to store it as the country’s growth cools.
中国严格控制流出国境的资金金额。但大和资本市场(Daiwa Capital Markets)负责除日本外亚洲市场的首席经济学家赖志文(Kevin Lai)说,在有着单独货币和法律制度的中国半自治城市香港及其位于中国大陆的邻居深圳之间,“有千千万万的走私者,把数十亿美元”带出中国。人民币贬值可能会促使更多的中国民众和公司把资金转移到国外,因为他们如果担心继续持有人民币,会蒙受进一步的损失。
China keeps a tight rein on the amount of money that flows over its borders. But between the semiautonomous Chinese city of Hong Kong, which has a separate currency and legal system, and its neighbor on the mainland, Shenzhen, “there are thousands and thousands of smugglers, and they just bring billions of dollars” out of China, said Kevin Lai, the chief economist for Asia excluding Japan at Daiwa Capital Markets. A weaker currency could push more Chinese people and companies to send their money abroad, for fear of further losses if they continue to hold renminbi.
That isn’t all. The weaker currency makes it harder for many of China’s heavily indebted companies to pay off what they owe overseas or to raise more money. A weaker currency also does not pack the same competitive punch because so much of the world’s manufacturing base is now in China; four-fifths of the world’s window-mounted air-conditioners are made in the country, for example. Basically, a weaker currency is not as much help if a company’s competitors all use the same currency.
今天的态势与十年前相比已经发生了很大的变化。那时,北京人为压低人民币相较于美元的价值,中国企业获益。低廉、稳定的货币是通用电气(General Electric)、美泰(Mattel)和新秀丽(Samsonite)等公司把生产转移到中国的众多原因之一。这种转移给中国提供了数千万个制造业工作岗位,刺激了中国经济,并帮助中国成为世界大国。
Today’s dynamic signals a big shift from a decade ago. Back then, Beijing kept the currency artificially weak compared with the dollar — and Chinese businesses benefited. A cheap and stable currency was one of a number of reasons that companies like General Electric, Mattel and Samsonite shifted production there. The shift gave China tens of millions of manufacturing jobs, stoked its economy and helped create a world power.
最后,它还帮助培养了本土竞争对手。目前,在特朗普的压力下,开利公司(Carrier Corporation)已经部分改变了把一些生产从美国转移到墨西哥的计划。但十多年前,开利在中国建了七座空调厂。不过2008年,该公司把它们并入了与美的成立的一家合资企业。美的是志高在中国空调行业的主要竞争对手之一。开利自称仍持有该合资企业40%的股份,但拒绝进一步置评。
In time, it also helped nurture homegrown competitors. The Carrier Corporation — which has partly reversed plans to move some production from the United States to Mexico after coming under pressure from Mr. Trump — built seven air-conditioner factories in China more than a decade ago. But in 2008, Carrier put them into a joint venture with Midea, one of Chigo’s main rivals in the Chinese air-conditioner industry. Carrier said it still held 40 percent of the joint venture but declined to comment further.
The weaker currency still helps a number of companies, especially a small but growing group of Chinese companies that export specialized or high-quality products and compete with Western companies. One such Chinese company is Broad Air Conditioning, a maker of specialized central air-conditioning systems that are more energy-efficient but also considerably more expensive than most central air-conditioning systems.
“However much the U.S. dollar rises, our profits rise the same,” said Wu Zheng, general manager of Broad’s international operations.
But for most companies, other issues dwarf the currency. Wages have risen to the point where global manufacturers of low-cost items like shoes and clothing are shifting work outside China. Economic growth is slowing. Global trade has weakened. And in many industries, like window-mounted air-conditioners, a surplus of Chinese factories has undermined pricing and wiped out profits.
Chigo — which is headquartered in Foshan, on the outskirts of the city of Guangzhou — lost money from operations in 2014 and 2015. In the first half of last year, Chigo eked out a tiny profit as the renminbi began to tumble. It was briefly able to capture some gains from the currency’s depreciation before foreign retailers demanded price discounts.
Chigo sells air-conditioners in 180 countries, including outlets in the United States like Menards, a Midwest chain of home-improvement centers.
Three years ago, Chigo experimented with its own shift overseas. With wages rising at home, it chose two countries with even lower wages as well as steep barriers to imports: Nigeria and India.
Chigo found that in both countries, worker productivity was much lower while government corruption was a problem. In Africa, security was also an issue. A car carrying Chigo sales managers in Ghana was approached in broad daylight by two armed robbers who demanded the managers’ wallets and pistol-whipped their driver. Now its Indian and Nigerian operations have nearly shut down.
“In China, companies feel a sense of safety, which is already a huge support” for business, said Jackie Cheng, the vice president of Chigo and general manager for its overseas marketing. China’s high-speed rail network and its world-class network of new expressways also make it easy to do business, he added.
Persuading Chinese managers to live overseas is also difficult, Chigo found. “That’s serious,” Mr. Cheng said. “We can’t get used to the food outside, and many Chinese can’t really speak English.”
The factory in Foshan ran only four days a week late last year because of weak orders and overcapacity in the Chinese air-conditioning manufacturing sector. In interviews, some Chigo workers expressed irritation that this meant they earned less money.
But Mr. Cheng said that the company’s sprawling, 23-year-old factory had become busier in recent weeks as orders have risen. He attributed this mainly to an acceleration in the American and Chinese economies but also to the fall of the renminbi, which makes air-conditioners slightly cheaper and more affordable around the world and results in slightly greater demand.
Yet if the renminbi weakens further this year, as many economists expect, Mr. Cheng expects further demands from overseas retailers for discounts, coupled with threats to move orders to other Chinese air-conditioning manufacturers if Chigo does not comply. Frowning, he added, “Our clients have already told me, ‘The renminbi will reach 7.1. Please reduce your prices.’”