financial
financial

China Currency Move Seen as First Step

Economists said China's decision on Thursday to revalue its currency for the first time in 10 years was a step that might signal more significant changes in...

financial/news

WASHINGTON — Economists said China's decision on Thursday to revalue its currency for the first time in 10 years was a step that might signal more significant changes in its economic policy.

After months of political and market pressure, China abandoned its pegging of the yuan to the dollar, strengthening it by 2.1 percent to 8.11 for every dollar. The yuan, also known as the renminbi, had traded at a rate of 8.28-to-1. It will now fluctuate against a so-called basket of currencies.

Critics of the currency policy, including some members of Congress, European officials, and textile and apparel manufacturers, have argued that a lack of currency flexibility had given China an unfair advantage and was a major factor in the loss of U.S. jobs and in a trade deficit with China that reached a record $162 billion last year.

The currency issue has been among several points of friction between the U.S. and China. The Bush administration has pushed China to better enforce intellectual property laws and has imposed quotas on $1.31 billion worth of Chinese imports.

For now, the revaluation isn’t  enough to influence retail prices, change sourcing decisions or relieve pressure on U.S. manufacturers, experts said.

“It’s a small step in a direction that will lead them to greater flexibility, but it isn’t going to change the dynamic in the apparel industry,” said J.P. Morgan Chase economist James Glassman. “It’s not going to change the appeal of China and East Asia as a source of production.”

However, the revaluation might slow the general decline in apparel prices that has characterized the industry for years, said Tom Haugen, president of sourcing giant Li & Fung USA.

“I don’t think we’ll see prices go up because prices are quoted in dollars,” he said. “Their currency would have to be revalued an awful lot for it to have some sort of impact.”

The incremental change, which could ultimately make goods from China more expensive, won’t immediately affect powerhouses like Wal-Mart.

“We don’t expect the change to have any material impact on our business,” said a Wal-Mart spokeswoman, who stressed that the retailer sources goods in more than 70 countries. “Prices in our stores are not going to change anytime soon.”

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