Facing a two-headed dragon:
China's change on exchange rates may help some local firms, hurt others.

The Holland Sentinel - Sunday, August 7th / By PATRICK REVERE Business editor

The recent revaluation of China's currency presents a mixed bag for Holland area businesses, which both compete against Chinese companies and have a direct interest in the country's economy.

Following significant international pressure, the Chinese government decided last month to reduce the value of the yuan by 2.2 percent and unlink it from the U.S. dollar. Because the yuan had been tied to the dollar, its value had remained artificially low, making Chinese-made goods cheaper and encouraging the flood of Chinese exports that has revolutionized the international economy.

The revaluation will make Chinese products in the U.S. slightly more expensive, most notably those electronics and textiles that fill many of the country's superstores. However, the slight change will do little to tilt a trade imbalance between the two countries, which reached nearly $170 billion last year.

For tool and die makers, who have been begging all levels of government for help in competing with Chinese companies that have significantly lower labor costs, the revaluation makes only a slight difference. But Dave Rozeboom, vice president of Jamesway Tool & Die, 401 N. 120th Ave., even the small change is welcome news.

"If you're quoting a job against a Chinese company, and if a contractor comes back to us and asks if we can do it for prices that compare to that Chinese company, well, it's not even close," Rozeboom said. "Our materials costs sometimes exceed the cost of an entire project from one of these offshore shops."

Craig Kane, co-owner of Cutting Edge Technologies, 13305 New Holland St., said the revaluation gives people in the industry more security. However, as the case has been for several years, domestic tool and die shops must concentrate on quality to compete against overseas rivals with drastically lower labor costs.

"Our experience in the past also is that there has been ... a difference in the standard of the tooling when they go over to Japan and China," Kane said. "The quality of the tools is not the same as you get here. Ours are holding up better."

Global Concepts, 785 Waverly Court, is an aluminum die caster of diverse products for a variety of industries. While it produces many of its own products, it also outsources work to plants in the Far East and is setting up its own shop in China.

Rudy Broekhuis, executive vice president of Global Concepts, said the Chinese government's revaluation may have an affect on the company in the long run.

"Many times the supplier will absorb that type of percentage," Broekhuis said of the 2.2 percent change. "We're talking about a pretty small change. If there were a change in the range of 5 percent, that's when we would get into a conversation about sharing that difference.

"The revaluation is not necessarily a good thing for an importer," he said. "Changing the currency to strengthen it against the U.S. dollar will ultimately make things more expensive to bring in."

Global Concepts is building an aluminum die casting facility in Ningbo, an a trade port and industrialized city on the Yangtze Delta south of Shanghai.

"Fortunately for us we did most of the purchasing for that project prior to the revaluation, otherwise the change would have made a significant impact on our costs," Broekhuis said.

Les Brand, co-owner of Supply Chain Solutions, a freight movement manager at 1451 M-40, said American businesses should refrain from focusing on small currency changes and look at the big picture.

"There's been a lot of contention that we're losing jobs overseas because of the way China values its currency against ours, and that's true in a sense," Brand said. "But in a broader sense, we all need to realize that the economy we operate in now is a global economy and nothing is going to change that.

"To keep our standard of living where we want it to be, we need to find a way to do business in China," Brand said. "The Chinese monetary system and their policies ... isn't going to change the fact that the country wants to invite people both to do business there and buy their products here. Even if the long-term picture includes another revaluation, we have to be able to participate in that market."

Sligh Furniture and Clock, 1201 Industrial Ave., has had manufacturing plants in the south of China for several years.

Chairman and CEO Rob Sligh said his company pays for those operations in U.S. dollars, nullifying any affect the currency change would have had on his business. Regardless, Sligh said he and others at his company view the change as a movement toward the ideal global business situation.

"We just think that free capital flows are good as a world policy. In principle, this is a movement in the right direction to let the marketplace determine the flow of the yuan and the dollar," he said.

But that ideal comes with a caveat for the American consumer.

"As Americans we have to be careful of what we hope for because if there's a sudden movement where the yuan becomes a lot stronger against the dollar people shopping at Wal-Mart, for instance, would see a price increase that would drawf the federal assistance we've seen in recent years to stimulate the economy."

Jeff Meyer, executive director of the Van Andel Global Trade Center at Grand Valley State University in downtown Grand Rapids, agrees that the currency shift is relatively small, but that the change should be viewed from a political and philosophical perspective to gauge future possibilities.

"There was a lot of heat coming from the U.S. to take the peg off our currency, and now everyone's talking about the change," he said. "So the Chinese have accomplished what they wanted to accomplish."

But the yuan will now be tied to a basket of currencies instead of just the dollar, and is still not free-floating like other currencies, such as the euro or the Japanese yen."I think it's a good thing, but we shouldn't use the little nibble we've been given to change our whole strategy," he said. "However, it's an excellent time for our companies to take the small change and extrapolate on the possibility of how much more it can float and see how that will affect the business."