Luxury imports hurt by weak yuan as Chinese consumers favour local brands
China’s imports have been hit hard by the weaker yuan since the currency’s one-off depreciation in August last year, with total imports in June falling 9 per cent year on year to US$132.28 billion.
“The weak yuan means all imported goods would be more expensive than they were a year earlier, which has been hard on companies that import goods to sell in China,” said Louis Tse Ming-kwong, a director of VC Brokerage.
Tse said the overall slowdown in the economy and Beijing’s anti-corruption campaign have been factors that discouraged people from buying imported luxury goods such as cars and jewellery.
“In comparison, mid-tier brands or domestic brands would be favoured by mainland customers over the past year in light of the falling yuan. This trend is likely to continue as the yuan is unlikely to bounce back any time soon,” he said.
The yuan has fallen more than 7 per cent against the US dollar since Beijing carried out a one-off 1.9 per cent devaluation of the currency on August 11 last year.
Share prices of companies that imported goods plunged after the sudden depreciation over fears that a cheaper yuan would hurt mainlanders’ interest in buying imported luxury goods. The June import figure, the latest full month of data available, proved such fears a year earlier were not unfounded.
“According to my observation, many luxury goods consumers choose to buy those products in China through e-commerce platforms, instead of travelling overseas to make purchases. This is because a weaker yuan means it would be more expensive for them to travel overseas,” said Tang Xiaotang, founder of NoFashion, a news portal focusing on luxury sectors.
Imported cars was one of the sectors hit by the weak yuan. Volvo has posted flat mainland China annual sales growth, selling 81,588 vehicles in 2015 compared with 81,574 a year earlier. However, this improved in January with monthly sales jumping 22.9 per cent year on year to 7,228 units, which analysts credited to the central government’s tax support for car sales.
So it hasn’t all been bad news for the auto sector. “We haven’t seen a significant impact on auto sales after the big yuan depreciation last August,” said Angus Chan, an automobile analyst at Bocom International in Hong Kong. “In the case of high-end cars, the target customers are not very price sensitive, so yuan’s depreciation hasn’t curbed auto buyers’ enthusiasm,” said Chan.
However, Volvo’s chief executive Martin Lundstedt said in February this year that he believes the Chinese auto sector will remain under pressure and, as a result, it would affect the company’s growth on the mainland.