Some Chinese firms now telling clients: Pay in euros, please

Some Chinese firms now telling clients: Pay in euros, please
Posted by Raja Petra
Thursday, 01 May 2008

Exporters in a bind as US$ slips, demand softens and workers demand more pay

Chinese exporters face a double whammy as the dollars that they earn buy fewer yuan, even as Chinese workers are demanding fairly sizable wage increases.


FACING the double-barrelled threat of a falling United States dollar and weakening American demand, some Chinese exporters are starting to ask European customers to pay in euros.

Others are trying to increase domestic sales. This, in a nation whose economic juggernaut was built on exports.

Drastic times call for drastic measures. And the dollar's accelerating fall against China's currency - down 4 per cent so far this year, after dropping 7 per cent last year - has left businesses across China nursing losses and trying to figure out how to raise prices for overseas buyers.

Mr Ma Lin Ping, the general manager of Taizhou City Qizhou Industry, said his company lost US$43,000 (S$58,553) on a single deal last year because of the dollar's tumble against China's yuan or renminbi.

The company agreed at the end of 2006 to send 16 shipping containers full of collapsible wood houses for use in gardens and at the beach. When the company finally completed the deal at the start of this year, the payment was in dollars that had lost nearly a tenth of their value in yuan.

Since the start of this year, 'I quote prices in euros to all my European clients', Mr Ma said, adding that the company was also starting to design products for the Chinese market.

Companies that sell mostly to the United States have not yet tried to set prices in euros.

Instead, Mr Chen Mang, a manager at a musical instrument exporter, said his company now quoted dollar prices valid only for two or three months. That limits exposure to declines in the dollar over longer periods of time.

Making matters worse for many Chinese companies, American buyers have become very tough negotiators, as the US economy has slowed.

'They're just extremely sensitive to any price adjustment I make,' said Mr Wang Ming Guang, a sales manager at a company that exports salt and pepper shakers and spice racks.

Chinese exporters face a double whammy as the dollars that they earn buy fewer yuan, even as Chinese workers are demanding fairly sizable wage increases.

Some European buyers have agreed to pay in euros, which protects them from the risk they previously took that the dollar would strengthen against the euro. But others have been so delighted with the fall in the dollar that they still insist on paying in dollars. The Chinese currency has been fairly stable against the euro over the last several years.

China intervenes intensely in the currency markets to slow the rise of the yuan and preserve the competitiveness of Chinese goods in foreign markets. It has quintupled foreign reserves in the last five years to US$1.68 trillion last month.

Despite the hesitancy of American buyers, several exporters said they were passing on sizable price increases for shipments to the US.

Mr Chen, the sales manager at Shanghai Lansheng Grand Luck Import and Export, a musical instrument company, said his company had raised prices sharply - by 10 per cent over the last year to offset the fall of the dollar, and by another 5 per cent to cover rising costs in China for labour and raw materials.

NEW YORK TIMES

Stocks fall as investors wary of consumer data, Fed decision

Stocks fall as investors wary of consumer data, Fed decision

By JOE BEL BRUNO, AP Business Writer 31 minutes ago

NEW YORK - Wall Street pulled back Tuesday as investors, disappointed by a low reading on consumer sentiment, traded cautiously ahead of the Federal Reserve's Wednesday decision on interest rates.
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The Conference Board said its April reading on consumer confidence fell for the fourth straight month because of heightened concerns about soaring inflation and the weakening job market.

Consumers are not the only ones anxious about inflation — Wall Street is worried that accelerating inflation could curtail consumer spending, which accounts for more than two-thirds of the U.S. economy. Rising costs are also of paramount concern to the Fed, which began a two-day policy meeting Tuesday.

The Fed is expected to cut interest rates by a quarter point on Wednesday, but then hold firm for a while. Policy makers face a difficult juggling act of trying to shore up the faltering economy without triggering inflation.

"There's no panic out there (in the market) because of the consumer confidence numbers, but there is more concern about inflation then we had just a few weeks ago," said Jim Herrick, director of equity trading at Baird & Co. "Everyone is interested in what the Fed will do about it."

In early afternoon trading, the Dow Jones industrial average fell 28.82, or 0.22 percent, to 12,842.93.

Broader markets also declined. The Standard & Poor's 500 index dipped 4.29, or 0.31 percent, to 1,392.08, and the Nasdaq composite index retreated 3.79, or 0.16 percent, to 2,420.61.

Bond prices rose as investors remained hesitant about equities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.82 percent late Monday.

Oil prices fell amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro. Light, sweet crude for June delivery fell $2.55 to $116.21 a barrel on the New York Mercantile Exchange.

Wall Street was also pressured by a report from research firm RealtyTrac that showed the number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier.

In corporate news, Merck & Co. — one of the 30 Dow companies — sank $4.07, or 9.8 percent, to $37.38 after saying the Food and Drug Administration refused to approve a new cholesterol drug, Cordaptive.

And earnings reports came in mixed.

On the positive side, Lear Corp. reported a first-quarter profit rise, lifted its 2008 sales outlook, and backed its earnings prediction for the year. Lear shares rose $4.72, or 17.9 percent, to $31.14.

Meanwhile, MasterCard Inc. spiked $24.06, or 9.8 percent, to $266.56 after reporting that profit more than doubled in the first quarter, and rival Visa Inc. rebounded from an early decline to rise $1.28 to $76.35 after reporting late Monday its first-quarter profit increased 28 percent. Both companies said cardholder use rose moderately in the United States, and particularly quickly abroad.

But profit woes are not yet over for financial institutions with big exposure to consumer debt.

Countrywide Financial Corp., the nation's largest mortgage lender and servicer, said it lost $893 million during the first quarter due to a sharp increase in its provisions for unpaid home mortgage loans. The latest results marked the third consecutive quarterly loss for Countrywide, which agreed in January to sell itself to Bank of America Corp. for about $4 billion in stock.

Shares of the lender rose 9 cents to $5.92, while BofA fell 44 cents to $37.74.

And Deutsche Bank AG said it wrote down $4.2 billion in leveraged loans, commercial real estate and mortgage-backed securities, during the first quarter, pushing Germany's biggest bank to its first quarterly loss since 2003 amid trading losses, lower revenue and global market jitters.

The Russell 2000 index of smaller companies fell 10.02, or 1.38 percent, to 715.35.

Declining issues surpassed advancers by nearly 2 to 1 on the New York Stock Exchange, where volume came to a light 596.5 million.

Overseas, Japan's Nikkei stock average rose 0.22 percent. Britain's FTSE 100 fell 0.02 percent, Germany's DAX index fell 0.58 percent, and France's CAC-40 shed 0.71 percent.

Malaysian central bank unlikely to move rates on slowdown fears - economists

Malaysian central bank unlikely to move rates on slowdown fears - economists
Posted by Raja Petra
Monday, 28 April 2008

(Thomson Financial) - The Malaysian central bank is not expected to move interest rates when it meets on Tuesday even after inflation edged up for a second straight month in March as it weighs the risk of a possible sharp slowdown should the U.S. economy sink into a severe recession, economists said.

'It is unlikely Bank Negara will raise interest rates to check inflation this year as domestic demand is the required driver of growth against the backdrop of a U.S. recession-led global economic slowdown,' said Aseambankers Research.

Southeast Asia's third largest economy is highly dependent on exports to fuel growth. But the export sector has performed poorly since last year as the turmoil in the subprime mortgage market dragged the United States, a major buyer of Malaysian-made electrical and electronic goods, into a severe downturn.

'The risks of further subdued export growth have risen with the deepening U.S. subprime debacle,' said the Malaysian Institute of Economic Research (MIER), an independent economic think tank.

The economy is expected to grow at a slower pace of 5 percent to 6 percent this year after expanding by 6.3 percent last year as external demand falters, according to the government.

The government is hoping that robust domestic spending and strong commodity prices would help offset weakness in the manufacturing sector, which accounts for a third of the economy.

Malaysia, a net exporter of petroleum and the world's leading palm oil producer, has benefited from the high prices of crude oil and crude palm oil.

But having a share of only about 20 percent of total exports, commodity exports have not been able to offset the slack in the key electronic and electrical sector, MIER said in a report issued this month.

The electronic and electrical segment accounts for about 37 percent of total exports.

The MIER has maintained its 2008 economic growth forecast at 5.4 percent, saying growth is likely to slump in the second half as it takes a hit from the slowdown in the United States.



Keeping prices low



Malaysia's inflation rate accelerated to 2.8 percent in March with the food price index up 4.9 percent, according to official data.

The March inflation was the highest in 12 months but was still considered mild when compared to other countries in the region where inflation has hit multi-year highs.

The Malaysian government is able to keep domestic prices low even after global food and energy prices skyrocketed because it imposes strict price control on essential items such as rice, bread and flour.

Domestic retail prices of gasoline, diesel and natural gas are also heavily subsidized.

Zeti Akhtar Aziz, the governor of the Malaysian central bank, said last week that inflation may hit 3 percent in the coming months as food prices continue to trend higher.

But the central bank chief dismissed the idea of curbing rising food prices by moving interest rates.

The current rise in food prices is being driven by supply conditions and is not a result of rising demand and 'fiddling with interest rates is not the answer in this kind of environment,' she said.

The central bank's overnight policy rate at its current level is not discouraging demand for raising financing and is not discouraging consumption and investment activities, Zeti said.

The central bank has left its overnight policy rate unchanged at 3.5 percent since April 2006.

Economists said instead of depending on monetary tools, the government is exploring fiscal and administrative measures to rein in inflation. They said the central bank is also more likely to tolerate a faster rise in the ringgit in a bid to curb import inflation.

In an effort to ensure price stability, the government has set up a cabinet-level committee to tackle inflation issues.

The government also said this month that several big-ticket projects under its multi-billion-ringgit development blueprint are currently under review due to rising costs, Abdullah said.

'We see the government re-scheduling and re-prioritizing the development projects for implementation to make allocation for higher subsidy,' said OSK Research in a note.

Malaysia's fuel subsidies could hit 53 billion ringgit if crude oil prices stay around $117 a barrel, according to the government.

The exchange rate could be another useful tool in the face of rising prices, economists said.

The Malaysian ringgit hit a new 10-year high of 3.13 ringgit against the U.S. dollar earlier this month.

'We believe the central bank is comfortable with the strengthening of the ringgit so far this year, to partially offset the inflationary pressures coming from import costs,' said Aseambankers Research.

MIER is forecasting the ringgit will break the 3.00 ringgit per U.S. dollar mark by the end of this year, saying the local currency is still undervalued as the declining dollar has yet to bottom out.