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MANUFACTURING: Expect China to revalue yuan; Russell Luckock concludes his look at the future of manufacturing with a few signs of hope that the Chinese giant may be slowing down.

Byline: Russell Luckock

There are few signs of hope. In so far as China is concerned, this year, we have had to do rush jobs, where Chinese goods have not appeared on time.

One of the excuses offered is lack of electricity, and there is no doubt about it, China does have an energy problem.

I think in the non-too distant future the Chinese are going to revalue the yuan. Should this occur it would not surprise me to see it move upwards by something ten to 20 per cent. This would cause a lot of sums to be recalculated.

An important pointer towards my theory of revaluation is that 12 months ago the Chinese government started controlling both lending and investment.

Further curbs on industry had been introduced this year, and, with China's Central Bank raising its interest rate on October 28, for the first time in nine years, I believe further control will be needed.

Shipping charges have continued to rocket from the Far East over the last 12 months, due to a shortage of vessels, and I see no signs of these charges falling back.

In addition, Chinese shop floor workers are seeking a better standard of life, together with all the modern facilities that first world countries take for granted.

Despite the Chinese Government's refusal to permit satellite television, realisation is beginning to dawn that they could charge more for their product, and be competitive.

Those of us with grey hair will remember this kind of competition from the Japanese in the 1950s.

Here with the latest plant and equipment and lower manufacturing costs, Japan was able to compete anywhere in the world.

Today, Japanese manufacturing costs are on a par with those of the UK and the US.

Therefore, for those companies that have survived, there has to be a degree of hope. I feel that the Government is sooner or later going to be extremely concerned about the UK trade deficit, which is at the highest level since records began.

Fifteen years ago, the government would have regarded this as a disaster.

Today, such bad news amounts to two or three column inches in the newspapers.

One of the solutions would be to take steps to regenerate British manufacturing by some imaginative tax changes that would provide companies with funds for investment.

It would be helpful if manufacturing industry were excused council tax for say, three to five years.

Corporation tax could be excused for all companies with turn overs of pounds 5 million or less. This would assist the smaller companies teetering on the brink, and might bring in new investors into the business.

2005 is going to be a very tough year for manufacturing.

Russell Luckock is head of Birmingham pressworks company AE Harris
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jan 6, 2005
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