A Chinese Revaluation May Not Help U.S.

Keith in Brad thank you young

2005 Guangzhou, China-

Almost the size of an old wagon, here is a bright orange machine that cuts plastic particles into six rowsinch-

Blue long clip from American hospital.

Pan Guotao, 29year-

Old workers from a village in northern China sit on a plastic stool next to the machine, waving a straight razor to separate the clips, which are used to hold ice bags with plastic sleeves.

It looks like a simple operation, but it is at the heart of the US trade deficit with China.

The Bush administration and many private economists have urged Beijing authorities to allow the yuan to rise against the dollar.

They want China to stop buying large amounts of dollars and issue more and more yuan to lower the value of the yuan.

But many Chinese and foreign executives in China say the appreciation of the yuan, which is linked to the dollar, is unlikely to be a silver bullet in dealing with the US deficit.

They say the cost here is so low that the re-valuation is unlikely to significantly narrow the deficit or even increase it.

Today, China's export advantage is far beyond her low wages.

$1 per hour, free board and lodging.

Her employer, Charles M.

Hubbs, who owns a plastic factory, calculates that the rent he operates here is built by workers who earn even less than MS.

Pan, is a quarter of a city like Houston.

Perhaps more importantly, China has learned to build factories and equipment at a fraction of the cost of Western countries.

The large orange plastic injection molding machine is advertised here for $18,000, while the advertising cost for the US model is as high as $60,000; the Chinese-

Machines manufactured are more prone to failure, but can be quickly repaired due to less than two miles of assembly plants.

The most expensive part, a mold used to form a special hardening and shape of the clip, costs less than $8,000 in the United States and $70,000 in the United States.

This saving makes Mr.

Hubbs feels insulated from the huge change in the RMB exchange rate, which is about $8.

$28.

'With today's currency, we can easily save 30% of the competition in the Caribbean,' he said . '.

'Making the yuan more expensive to the dollar means that American exporters to China, such as Boeing, can sell more goods.

Importers like Wal-Mart

The toys, clothes and other goods they buy, the supermarket has to pay more.

This will make Wal-Mart

Importing from other countries and even using US suppliers is an incentive.

However, executives in many industries said that China's competitive advantage is so great that even the biggest yuan appreciation that Beijing may approve this year could reach 10%, s. trade deficit with China will not be slashed.

In fact, the appreciation could increase the deficit in months or even years, immediately pushing up the already considerable cost of US imports from China.

The appreciation of the yuan will promote American companies to export goods to China, because their goods will become cheaper in China.

But the United States now buys almost five times as much from China as from the United States.

As a result, growth in smaller volumes of exports could be overwhelmed by higher costs for larger volumes of imports. Alan G.

Hassenfeld, chairman of Hasbro, said the yuan was most likely to rise 3% to 5% this spring.

However, this level of change will not prompt toy manufacturers to seriously consider moving production to a lower level

Wage countries like Vietnam or India.

He said that the Chinese toy factory has a great advantage over the factories in other places in terms of the quality and dedication of workers and managers.

Even if the yuan appreciated by 25%, few people said they expected that it would still allow many toy manufacturers to successfully export various products from China.

Such a big increase could prompt manufacturers to shift some of the biggest products, such as cars.

To save transportation costs, he took the car to a country closer to the United States

Says hasenfield.

'You won't run,' he said, 'but you will bring something with you and move them back to Mexico' or other countries nearby.

Advertising companies like toy manufacturers that use a large number of Chinese labor are most likely to be affected by the appreciation of the renminbi.

This is because the wages of workers are yuan. in China, wages are already rising. -

Even without the appreciation of the RMB.

Daniel Zhou, export manager of Ningbo Colden toys near Shanghai, said the company's average assembly

Online wages have almost doubled in the past five years, from $97 to $181 a month.

His factory is not like

Free accommodation is not provided.

Space for a shared apartment nearby is $12 per month and food is $30.

Improved conditions in rural areas make workers more reluctant to move to cities unless they are paid more.

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Ningbo Kelden handles wage increases in the same way as factories in developed countries ---

Through automation and more investment in design.

The company produces Santa Claus dolls that push themselves through the floor on snowboards, and machines sew zippers and hems for doll costumes.

The RMB needs a greater appreciation in order to bring serious problems to enterprises. few people will think of this, sir. Chou said.

If the yuan 'rises by 15%, it will be very high, and 20% will be a disaster,' he said '.

The dandelion greeting card company in the southeastern Chinese city of Yiwu has also taken the same approach.

The company's cards have delicate and complex flowers glued to the vase on the front and are advertised as handmade.

But general manager Zhu Songwei said

Now, the controlled machine is used to design, print and cut the material of the card, improve the quality, the worker can only glue on the flower in the last step of the machine, which is not affordable. Mr.

Zhu added that the appreciation of the RMB 'will not have much impact because we have better quality and design'

Punch-in workers.

notable exception to the ability of Chinese enterprises to withstand the appreciation of the renminbi may be the industry that most needs Labor: clothing, especially low Labor

Includes a lot of very basic sewing end clothing that can be done by unskilled or even illiterate workers.

Peng Peter, manager of Xiamen Point Light Industry Company in southeast China, which produces cheap backpacks for children, said it would be a disaster if Beijing allowed the yuan to rise by 10%.

He said some of Taiwan's competitors have already started building businesses in Vietnam to take advantage of lower wages.

The appreciation of the yuan will also bring some comfort to a considerable number of Chinese exporters.

Factories with less labor

Intensive products such as auto parts and computers often rely heavily on imported materials from oil to computer chips, which are mainly priced in US dollars.

Therefore, the appreciation of the RMB will reduce the cost of their materials. Mr. advertising

Harbs business, Fortunique Limited.

Buy a variety of plastic resins from Saudi Arabia, Thailand and the United States from Exxon petroleum and Dow Chemical.

According to his calculations, nearly three of his total costs are in dollars.

Therefore, in some ways, the appreciation of the RMB may not only allow China to continue to export goods to the United States, but also have a moderate impact on the relatively mild U. S. exports to the United States.

It's $25 in total.

The first 11 months of 2004 were $6 billion, compared to $114.

19 billion of imports from China.

S. food exports are strongest, especially soybeans and infrastructure equipment such as GE's large turbines and strong mining equipment sold by Caterpillar.

In many products, US equipment manufacturers do not compete directly with Chinese manufacturers.

Chinese companies either do not produce the equipment at all or produce equipment with much lower quality.

This limits the potential of Americans to use higher yuan to sell more products and capture market share from Chinese companies.

At the same time, China's demand for food has grown slower than many other kinds of products.

Although the Chinese eat more meat than the meat directly consumed by imported food, which requires more animal feed, the overall growth is still small. Merle .

Hinrichs is an online agency and directory company that serves 140,000 overseas suppliers in the US market, accounting for the majority in China.

The goods industry did not find any indication that there would be a big difference without a very large appreciation.

'It's more of a perceived influence than an actual one,' he said . '.

'This will not have a big impact on real trade.

'We are constantly improving the quality of our text archives.

Please send feedback, error reports, and suggestions to archid_feedback @ nytimes. com.

version of this article was printed on page C00001 of the National edition on January 14, 2005, with the title: international business;

China's appreciation may not help the United States. S.

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