Bankers hawk hedging as trade war hits China’s yuan

China’s latest currency slide has sparked fears that the US trade war could be broadening into a currency war. (AFP)
Updated 22 August 2019

Bankers hawk hedging as trade war hits China’s yuan

  • The yuan has fallen about 11 percent against the dollar since start of the US trade war 17 months ago

SHANGHAI: In a Shanghai room packed with small businesses ranging from furniture makers to garment exporters, Zhu Yuan, a currency expert at Bank of Communications, explains why Chinese companies need to build their defences against currency volatility.

“Currency swings are now largely at the mercy of geopolitics and Sino-US relations. The yuan’s value is getting nearly impossible to predict,” he told members of the city’s chamber of commerce.

“Relatively volatile yuan fluctuations have exposed enterprises to big currency risks.”

The yuan has fallen about 11 percent against the dollar since Washington announced its first hefty tariffs on Chinese imports 17 months ago.

The latest jolt came early this month, when authorities surprised markets by letting the yuan slide through the psychological support level of 7 to the dollar to decade lows, unsettling Chinese firms such as exporters and heavy borrowers of foreign debt.

Company executives listened with rapt attention as Zhu drew parallels with a house on sale to explain the basics of one hedging tool, a currency option. It is like putting down a deposit, he said, so that one has the right to buy the property in three months at a fixed price, no matter how prices change. With no quick end to the trade war in sight, Chinese bankers, consultants and exchange operators are milking the opportunity to sell risk-mitigating tools that they claim will allow company bosses to sleep better at night.

“As the yuan cracks seven, uncertainty ahead will only increase,” said Zhu Jianhua, a senior executive at commodities importer Shanhan Resources.

Currency volatility is relatively new for Chinese businesses. Until 2015, when Beijing adopted a more market-driven currency policy, the heavily managed yuan had been on an almost uninterrupted decade-long firming trend against the dollar. Beijing’s trade war with Washington since 2018 has spawned increased uncertainty and volatility.

At the end of 2018, only 230 China-listed companies — less than 7 percent of total — were engaged in hedging, as per their disclosures to the exchange. Analysts say that partly explains why earnings in China, and hence share prices, are more volatile than those in the US.

According to an estimate by Industrial Bank Co, daily average trading in onshore yuan derivatives accounted for just 0.05 percent of the country’s total import and export volumes in 2016. 

China Merchant Securities estimates that, if the yuan falls 3 percent against the dollar in 2019, China-listed airlines and other transport companies could be hit with a combined 5.6 billion yuan (SR3 billion) loss, equivalent to 4.3 percent of their net profit.

As the yuan’s latest slide sparked fears the trade war could be broadening into a currency war, China’s central bank urged companies to take precautions.

“We hope that companies don’t expose themselves to currency risks too much,” the People’s Bank of China said on Aug. 5.

Huawei’s third-quarter revenue jumps 27% as smartphone sales surge

Updated 17 October 2019

Huawei’s third-quarter revenue jumps 27% as smartphone sales surge

  • American companies, significantly disrupting its ability to source key parts
  • Huawei was all but banned by the United States in May from doing business with American companies

SHENZHEN, SHANGHAI: Huawei Technologies Co. Ltd’s third-quarter revenue jumped 27%, driven by a surge in shipments of smartphones launched before a trade blacklisting by the United States expected to hammer its business.
Huawei, the world’s biggest maker of telecom network equipment and the No. 2 manufacturer of smartphones, was all but banned by the United States in May from doing business with American companies, significantly disrupting its ability to source key parts.
The company has been granted a reprieve until November, meaning it will lose access to some technology next month. Huawei has so far mainly sold smartphones that were launched before the ban.
Its newest Mate 30 smartphone — which lacks access to a licensed version of Google’s Android operating system — started sales last month.
Huawei in August said the curbs would hurt less than initially feared, but could still push its smartphone unit’s revenue lower by about $10 billion this year.
The tech giant did not break down third-quarter figures but said on Wednesday revenue for the first three quarters of the year grew 24.4% to 610.8 billion yuan.
Revenue in the quarter ended Sept. 30 rose to 165.29 billion yuan ($23.28 billion) according to Reuters calculations based on previous statements from Huawei.
“Huawei’s overseas shipments bounced back quickly in the third quarter although they are yet to return to pre-US ban levels,” said Nicole Peng, vice president for mobility at consultancy Canalys.
“The Q3 result is truly impressive given the tremendous pressure the company is facing. But it is worth noting that strong shipments were driven by devices launched pre-US ban, and the long-term outlook is still dim,” she added.
The company said it has shipped 185 million smartphones so far this year. Based on the company’s previous statements and estimates from market research firm Strategy Analytics, that indicates a 29% surge in third-quarter smartphone shipments.
Still, growth in the third quarter slowed from the 39% increase the company reported in the first quarter. Huawei did not break out figures for the second quarter either, but has said revenue rose 23.2% in the first half of the year.
“Our continued strong performance in Q3 shows our customers’ trust in Huawei, our technology and services, despite the actions and unfounded allegations against us by some national governments,” Huawei spokesman Joe Kelly told Reuters.
The US government alleges Huawei is a national security risk as its equipment could be used by Beijing to spy. Huawei has repeatedly denied its products pose a security threat.
The company, which is now trying to reduce its reliance on foreign technology, said last month that it has started making 5G base stations without US components.
It is also developing its own mobile operating system as the curbs cut its access to Google’s Android operating system, though analysts are skeptical that Huawei’s Harmony system is yet a viable alternative.
Still, promotions and patriotic purchases have driven Huawei’s smartphone sales in China — surging by a nearly a third compared to a record high in the June quarter — helping it more than offset a shipments slump in the global market.