Tags: China | Tests | Stronger | Yuan

Report: China Stress Tests Potential of Stronger Yuan

Friday, 26 Feb 2010 07:40 AM

China is conducting "stress tests" in the country's labor-intensive export sectors to see how much yuan appreciation firms can withstand, the local 21st Century Business Herald reported on Friday.

The newspaper cited industry sources as saying that the results of the test, conducted jointly by the Ministry of Commerce and the Ministry of Industry and Information Technology, would serve as a reference for the government's future yuan policy.

It added that these tests did not mean that Beijing was about to let the yuan appreciate, having frozen it in place against the dollar since mid-2008 as the government has tried to cushion exporters from the global financial crisis.

Nevertheless, the report marks a rare discussion in Chinese media about the feasible scope for yuan appreciation and comes amid rising speculation that Beijing may be on the verge of allowing yuan appreciation to resume.

According to the initial results of the tests, which focused on textile, garment, shoe and toy exporters, every percentage point of yuan appreciation would erode one percentage point of their profit margin. This would be a serious blow to profitability since their net profit margin is often only 3 to 5 percent, the newspaper said.

China has consistently said it will keep the yuan basically stable, a line that the commerce ministry repeated on Thursday.

A bipartisan group of 15 U.S. senators on Thursday insisted China's currency practices are effectively a subsidy and urged Commerce Secretary Gary Locke to consider action against Chinese imports.

© 2015 Thomson/Reuters. All rights reserved.

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