Chinese deny yuan revaluation coming
By Brian Carroll -- Furniture Today, February 22, 2004
HIGH POINT — HIGH POINT — China may at long last be moving to revalue its currency, the yuan, which has been pegged to the U.S. dollar since 1994.
But even if that happens, the effect of a stronger yuan on the U.S. furniture industry likely would be negligible.
Newspaper reports both in the United States and in China have fueled speculation that the Chinese government might be willing to let the yuan float, although Chinese officials have said flatly they are not considering such a change.
Because most international trade in furniture and raw materials for furniture is done in U.S. dollars, and since a revaluation of more than 5% to 10% for the yuan is considered very unlikely, Chinese-made furniture pricing isn't expected to change much.
Harvey Dondero, president of importer Universal Furniture, believes the weakness of the U.S. dollar will compel the Chinese to allow a modest revaluation of their currency. Because it is pegged to the dollar, the yuan has grown weaker as well, he noted. "The Chinese have figured this out and will float (the yuan) accordingly."
Officials at China's central bank uniformly have rebutted the rumors of a revaluation, saying there is no intention or desire to float the yuan, which stands at more than eight to one U.S. dollar. But rising inflation in China, an abundance of cash in its bank system, and the U.S. dollar's struggles have combined to spark debate over China's monetary policies.
"China is feeling the worldwide pressure to raise the value of its currency," said Jim Haughey, director of economics for the research group of Reed Business, Furniture/Today's parent company. He called revaluation sometime in the next few months "a high probability."
Inflation in China spiked up 6% in December alone, according to The Wall Street Journal. The currency debate is "an unanticipated consequence" of these other financial concerns in China, said Universal's Dondero.
If the United States were a major exporter of furniture to China, which it isn't, the yuan's fate would matter more to the industry. With about one-fifth of the world's population, the Chinese market could some day exert a huge influence with its currency. But not in 2004.
Many economists, including Haughey, believe any revaluation would likely be in the range of 5% to 10% — not enough to materially affect U.S.-China trade in any consumer product category.
The yuan debate, however, has provided another opportunity to pressure China to reform its trade policies, particularly since a transfer of manufacturing jobs to China from the United States continues.
"The Chinese must realize it is in their own bests interests to play by the rules and allow the free market to determine currency value," said David Huether, chief economist of the National Assn. of Manufacturers, the largest U.S. industrial trade association.
Europe, too, is applying pressure in the face of declining exports.
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