China’s Currency Change May Have Little Effect

While the unpegging of the Chin­ese yuan from the dollar has made international headlines, the change to the way Cambodia’s big­gest foreign investor handles its cur­rency is expected to have little effect here, financial observers said Wednesday.

China, which invested $80.4 million in Cambodia in 2004, ended the yuan’s decade-old peg to the dollar last week, marking the first step toward a more flexible ex­change rate regime, and allowing the yuan to strengthen 2.1 percent from its previously fixed rate of about 8.3 to the dollar.

Observers say that although Chi­na may have an impressive po­litical presence here, when it comes to foreign currency, it’s the dollar that dominates.

“Cambodia is still very much a dol­larized economy, so the impact is going to be basically limited,” Tim Smyth, managing director of In­do­china Research said.

Although Chinese firms appear to be making large investments here in terms of land concessions and power plants, these are unlikely to be affected, Smyth said.

“Most international infrastructure projects are usually denominated in major international currencies: euros, pounds [sterling], dollars,” rather than yuan, Smyth said.

The change is also likely to have little effect on the garment industry, where Chinese businessmen are also prominent, he added.

“Garment factories are exporting mostly to Europe or the US, so their contracts are probably written in euros or dollars,” Smyth added.

A senior member of staff at Ly Hour Exchange said Thai baht is also more commonly used here than the yuan, which cannot be spent in most stores. If the yuan now appreciates, it could slightly narrow the gap in production costs between China and Cambodia, Kang Chandararot, an economist with the Cambodia In­stitute of De­velopment Study said.

“It’s a positive trend for Cambo­dian competitiveness,” although a large gap in production costs would still remain due to high fuel costs, Kang Chandararot said.

The move could make the price of exports such as electronic goods from China to Cambodia more ex­pensive, Hang Choun Naron, Min­is­try of Finance secretary general said. It should also make it easier to export products from Cambodia to China, he added.

“That’s the theory, it depends on whether you have any products to export,” he said.