US thumbs-up to yuan revaluation
The US-based Semiconductor Industry Association (SIA) and the Electronic Industries Association (EIA) have applauded China's announcement that it will no longer peg the yuan to the US dollar - something that the country hasn't done in a decade.
The People's Bank of China, the country's central bank, said it would immediately allow the yuan to rise from its current 8.28 to the US dollar to 8.11. With the former fixed peg, Chinese manufacturers were able to produce relatively inexpensive products in comparison to US exports.
The undervaluation has been partly responsible for the loss of approximately 1.5 million US jobs to China last year. Economists estimate that China's currency manipulation has resulted in substantial undervaluation of the yuan, perhaps by 40 percent or more. China said it will move toward a managed floating exchange rate regime.
“We're supportive of any effort to correctly value a currency,” says SIA president George Scalise. “This will make US exports more attractive and it will make end equipment more expensive. We saw the same thing happen with Japan.”
Scalise said the pattern of rising prices is no different than with any growing manufacturing region. He said that some companies misjudged China, however, believing initially that because there are so many people that labour rates would remain low for decades. “Not all the people live in the industrial areas in China. If you go into the Western part of the country, salaries are still low. But in the cities there is a lot of demand for labour.”
Intel, the world's largest semiconductor maker, did not see the move impacting the company. “We operate on a cash basis so currency fluctuations don't affect us,” a spokesperson told Electronic News(US).
A more significant development from Intel's perspective was when China joined the WTO.
“China is increasingly trying to align their system with rest of world which is encouraging,” the spokesperson concluded.
19-Jan-2006