By Xinhua writer Wu Qi

    BEIJING, Feb. 28 (Xinhua) -- Zhang Yang, the driving force behind a major Sino-foreign joint venture knitwear exporter in East China's Zhejiang Province, has cultivated a habit of opening his computer and checking the daily exchange rate when he enters his spacious office.

    There was no rest for Zhang's heart on Feb. 20 when the Chinese currency reached a new high, with a central parity rate of 7.1452 yuan against one U.S. dollar. It was the 17th record high for the yuan since the beginning of this year.

    Zhang was understandably disturbed by the appreciation of the yuan, also known as the renminbi, because it had a strong impact on the performance of his firm.

    "We keep an average profit margin at about 3 percent from exporting garments. We would struggle through it if the yuan remains to stand so high."

    A one percent appreciation in the currency results in a loss of two percent in profit margin in the labor-intensive textile industry, the bulk of China's foreign trade, said Guotai Junan Securities Research Institute statistics.

    The yuan has appreciated more than 13 percent since it was de-pegged from the U.S. dollar in July 2005. It climbed 6.9 percent against the greenback in 2007 and has already appreciated more than 2 percent so far this year.

    Zhang, however, was well prepared to face up to the growing export risks rather than await doom. His way out was to divert many of his orders to the domestic market and sell the products as "export goods withdrawn for sale on home market" shops.

    "These days, exported garments make profit largely on the basis of volume. Sales in the home market creates higher profits, normally hitting 10 to 15 percent," said Zhang, glancing away from his computer screen, hastening to issue more orders of woolen sweaters and underwear to Hangzhou, the Zhejiang Province capital.

    Exports, a driving force of the Chinese economy along with fixed-asset investment, has come to a turning point, as evident in the declined monthly growth rate in January, industry experts said.

    China's trade surplus jumped 22.6 percent year-on-year to 19.49billion U.S. dollars in January, according to the General Administration of Customs. However, the trade surplus declined in monthly growth rate for the third consecutive occasion. In addition, the surplus has been at least 20 billion U.S. dollars a month since last May.

    Noticeably, imports grew 42 percent year on year to US$45.65 billion under the general trade mode in January. The year-on-year growth rate was 8.8 percentage points higher than that of exports. Imports via general trade exceeded 50 percent of the gross import values for the month, the first time ever in recent years. In January, China exported US$51.9 billion of goods, up 33.2 percent year on year.

    "The slowdown in export growth in January is largely a result of weakening demand from abroad, a fallout from the U.S. subprime mortgage crisis, the appreciation of renminbi and, in some cases, China's decision to curb exports of certain items by cutting export rebates or imposing export taxes," said Li Yushi, Chinese Academy of International Trade and Economic Cooperation vice president.

    Resembling their counterparts in the textile and garment sector, hosts of Chinese grain enterprises have also felt the chill and decided to turn their eyes away from European and American markets and focus back on the domestic market. This assuredly serves as a "cardinala ampoule" to ease ever-mounting inflation pressures in the country, industry experts said.

    Chinese grain exporters made big profits last year. In the first 11 months, net cereal exports grew 320 percent, compared with the same period a year earlier. The impressive growth was largely a result of price increases on world markets, observers said. They said a decrease in grain yields worldwide caused by unfavorable weather and growing demand for cereals used for bio-fuel production conspired toward the continuous price rises. However, industry observers forecast the growth will slow this year.

    Wenzhou Ouhai Xingda Flour Co. Ltd., a pillar enterprise in the cereal sector in the eastern Jiangsu Province, suspended exporting flour as it neared 2008, said Zhu Yihuai, manager of the business. Following on his heels were a list of major flour mills in the province that exported substantive amounts in 2007.

    The suspension was stimulated by the promulgation of three policies meant to curb grain exports boosted by climbing international prices, and to stabilize domestic food prices.

    On Dec. 20, the Ministry of Finance (MOF) decided to scrap export rebates for 84 agricultural products to discourage exports and to ensure the domestic supply of farm produce in the nation where food prices drove inflation to an 11-year high of 6.9 percent in November. The products included wheat, oat, maize, paddy, rice, broomcorn, soybean and their powdered byproducts.

    Prior to the scrapping, export rebates for grain were 13 percent. The move would be conducive to regulating the import and export of grain, and the export growth would somehow slow, observers said.

    One week later, to prevent the country from importing high international grain prices and to rein in surging domestic prices, the MOF said it would levy export taxes on wheat, corn, rice, soybeans and various processed grains in 2008. The export tax rates would range from 5 percent to 25 percent and affect 57 types of grain and grain products.

    On Jan. 1, China started a temporary-quota policy on the export of wheat, corn and rice powder to guarantee an adequate domestic supply.

    "Global staple food supply has been tightly balanced," said Liu Longheng, a Beijing University tax law professor. "China must give priority to feeding its 1.3 billion people. It is natural for the government to control grain exports. It is even likely to take further measures to harness exports of processed grain products."

    As the local market calls for a greater supply of grain, Zhu Yihuai rushes about the cities of Hangzhou, Zhoushan and Fuyang, the leading grain markets in Zhejiang, to sell off his stored grain to private grain merchants.

    "It is the peak season for grain. Private grain sellers compete vigorously for sources of goods. We are in a good position to sell grain at good prices."

    Zhu, who is in high spirits, also visits grain shops and supermarkets in a spate of cities and counties to promote his brand as a grain agent. He has even extended orders to the neighboring grain producing provinces of Jiangsu, Anhui, Jiangxi and Shandong to set up steady supply-and-demand relations.

    As shown in the Purchasing Managers' Index, an indicator of the economic health of the country's manufacturing sector, in January China's export orders index shrank for the first time in the past three years. Its export growth was expected to drop to 18 percent in 2008, compared with 25.7 percent in 2007.

    Industry experts welcomed the trend that more export-oriented businesses have returned to the home market.

    "The accelerated return of export-based enterprises, particularly those in the CPI-weighted textile and grain sectors, will undoubtedly help stabilize domestic prices and ease inflation worries," said Zhang Xiaoyu, an international market research fellow from the Ministry of Commerce.

    However, sales in domestic market will not always enjoy a royal road. According to Zhang Yang, the Zhejiang knitwear exporter, to sell products in the home market his business had to go through complex examination and approval procedures to change from its previous corporate identity of an enterprise dedicated to processing materials supplied by clients to a common Sino-foreign joint venture.

    It must also tap into the mid- and high-grade home markets with high quality and added values.

    "The Chinese market is no smaller than the EU and the United States. We may first cultivate our own brand by boosting our business on the domestic retail market. After that, we will export products under our own brand," the garment baron said.