Numerous Taiwanese Firms in China Likely to Fold on Sharp Revaluation of Renminbi

Taipei, April 11, 2008 (CENS)--Sharp appreciation of renminbi is expected to trigger a major shakeout among Taiwanese-invested enterprises in China, possibly forcing one third of Taiwanese firms in traditional lines to close shop, while allowing those with solid strength to land even more orders in two years later after experiencing the ordeal this and next year, said Lin Chin-chang, chairman of the Humen branch of the Taiwanese Chamber of Commerce in Dongguan, Guangdong Province, yesterday (April 10).

The exchange rate of renminbi broke the important psychological mark of US$1=7 yuan yesterday, closing at US$1=6.9920 yuan, boosting the scale of its appreciation so far this year to 4.47%, or a whopping 18% since the Chinese authority embraced a floating exchange rate for the currency.

Lin noted that the sharp appreciation has seriously eroded profits of Taiwanese firms, especially those in the traditional lines, due to their inability to the pass the effect of the appreciation to their buyers by revising orders placed by the latter, which mostly last three to six months, even one year.

As a result, Taiwanese firms in Dongguan area may fold at a rate of 20-30 per month, up from 2-3 last year, according to Lin. Xie Qingyuan, vice chairman of Taiwanese Chamber of Commerce in Donggouan, noted that Taiwanese makers won't be able to take any order should renminbi's exchange rate climb to US$1=6.5 yuan.

Taiwanese-invested textile firms will be among those hit hardest by the appreciation of renminbi, prompting many of them to scale down their Chinese operations. Due to the impact of the appreciation and the implementation of the Labor Contract Law, Makalot Industrial, for instance, plans to cut share of its Chinese operation to less than 30% this year, rather than 35% as originally planned, while shifting other new capacities to Cambodia and Vietnam.

Tainan Textile has also shelved its plan of constructing another two to three factories at its Qingdao plant site this year.