Canton Fair feels pinch from yuan appreciation
A more expensive yuan has sparked a tussle between exporters and buyers at the mainland's largest trade show over trading currencies, leaving deals unsettled.
Many Chinese exporters watching their sales orders depreciate along with the sinking US dollar tried to switch to yuan as the denominated trading currency to contain currency losses.
However, some overseas buyers, especially those in the United States, deemed the move 'wishful thinking' as they used currency gains to partly offset inflation in factory-gate prices.
At the China Import and Export Fair or Canton Fair, Susan Zhu of a Jiangsu-based garment maker said the company wanted to switch to settling bills in yuan, but foreign exchange restrictions meant it had to stick with the currency of the shipment destination, such as the US dollar in her company's case.
'The price set on the contracts we signed three months ago was much lower by the time of delivery,' she said of exports to the US.
'What we are trying to do is add a term to a six-month contract, which allows us to adjust prices a month before shipment if the yuan moves above a certain level.'
Lee Bing, a manager at a shoe producer in Guangdong, feared buyers would walk away if yuan appreciation was factored into contracts by raising prices.
'It is not feasible to include potential currency losses in a three-month contract, for example, because you never know how much higher the yuan will be in three months,' she said. 'I only know it's like seafood prices, changing every day.'
She added that the company hoped to export more to Europe as the yuan's exchange rate against the euro was relatively stable.
Brazilian Gustavo Pasquali Martinazzo, who was looking to supply logistics services to Chinese exporters, said competing interests between exhibitors and buyers could result in an impasse in deals.
'The yuan is getting stronger and exports become more expensive,' he said. 'But this is good news to importers in Brazil and North America.'
Britain-based buyer Colin Tether, who sources Chinese-made curtain rails and poles, said the wobbly foreign exchange rate was creating chaos on the trading landscape.
'To our advantage, the pound is stronger than the US dollar, but many Chinese exporters sell at a rate based on the dollar against the yuan, which makes the market chaotic,' Mr Tether said.
'This year will be a very rough year especially as the US and British economies are slowing down.'
Chinese exporters and overseas buyers are not the only parties exposed to soaring currency risks.
The central government, which has amassed US$1.68 trillion in foreign exchange reserve - the world's biggest - is watching that reserve depreciate.
The foreign exchange problem is one of many factors, including the rising costs of raw materials, labour and fuels that have prompted many manufacturers to raise prices by 3 per cent to 15 per cent.
Mr Tether suspects buyers would be forced to alternative sourcing regions of Vietnam, India and Laos for cheaper goods if price rises prevailed and escalated.
The yuan ended last week at 6.9935 against the US dollar and 11.1511 against the euro.