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New | Asia struggles with impact of devalued yuan

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Car parts factory manager Lee Wang-chung (left) tries to avoid buying China raw materials. Photo: SCMP Pictures

Lee Wang-chung, the manager of a car parts factory in Vietnam, swears that he won't buy from the country's chief raw materials supplier - China.

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The quality is so suspect, he says, that even thrifty Vietnamese prefer to splash out a bit more for Japanese motorbikes.

"We don't want to save costs for a big adventure on quality," said Lee, general-director of Taiwanese-owned Elma Vietnam Industrial.

It will get harder to resist temptation. Steel and other materials from China's massive producers are expected to flood the Southeast Asian country, which is dependent on foreign-invested factories and has a weak supply chain of its own.

That's because Chinese authorities let their currency depreciate by just over 3 per cent in mid-August, a motivator for Chinese exporters to go all out as they can convert US dollar earnings abroad into yuan.

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Vietnam tells the story for much of Asia following the yuan depreciation, the first in more than 20 years and the start of what China calls free market regulation of the currency. From Japan to Indonesia, countries that trade with China face a flood of imports - competing at times with their own wares - and more resistance to their exports, such as coffee from Vietnam, as prices go up.

An overall slowdown in China's economic growth would further motivate Chinese exporters to ship goods outside as domestic demand cools, especially for factory orders.

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