China currency controls could wreck NZ manufacturing, says group

The Chinese Government's exchange rate controls could annihilate some areas of New Zealand manufacturing if allowed to continue, says an industry body chief.

New Zealand Manufacturers and Exporters Association chief executive John Walley said China's management of its exchange rate meant Chinese products became artificially competitive.

"Which makes it much more difficult for the New Zealand exporters and the New Zealand tradeable economy to supply the domestic market because stuff out of China is so much cheaper," he said.

Chinese Premier Wen Jiabao said the Government would reform its exchange rate controls but keep its currency "basically stable".

He rejected foreign pressure over the issue, and gave no indication when Beijing might allow the yuan to rise against the US dollar.

"I don't think the renminbi [yuan] is undervalued," Wen said.

Washington and other trading partners say the currency gives Chinese exporters an unfair advantage.

Walley said Chinese products would eventually stop being kept at artificially low prices.

But by then some Kiwi manufacturing sectors, such as furniture-making, would have lost their capacity to supply the domestic market, he said.

"Those industries will die because they can't compete."

Furniture Association of New Zealand executive secretary Alister Murray was pleased to hear of Premier Wen's indication that exchange-rate controls might be rolled back.

"If the cost of Chinese imports went up there would be some furniture companies saying 'that's great news'," he said.

John Mihaljevich, managing director of Finewood, an Auckland-based furniture manufacturer founded in the 1970s, said the industry was a mere "shadow" of what it was 10 years ago, mainly because of cut-rate imports.

"The attrition rate is huge, businesses have been closing almost weekly," he said.

Remaining New Zealand furniture manufacturers were customising and focusing on producing top-end products to try to survive, Mihaljevich said.

He was unsure of what impact the Chinese currency had exerted on New Zealand furniture makers, but said: "Furniture manufacturing has really got to the level now where it's not surviving."

Catherine Beard, manufacturing executive director for Business New Zealand, said the Chinese Premier's indications that exchange rates controls would be reformed were a positive sign.

"Because [China is] such a big, economic giant we think that its currency, if it can find its realistic level, will be positive for New Zealand because New Zealand manufacturers would become more competitive."

Beard said New Zealand manufacturing had become more specialised.

"We are doing well on quality of product or individualised solutions ... we are not necessarily trying to compete where you have a high labour component."