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China economy

Strong yuan, rising costs are bigger worries than US trade war, say Chinese exporters

PUBLISHED : Wednesday, 18 April, 2018, 12:54pm
UPDATED : Wednesday, 18 April, 2018, 10:51pm

Chinese exporters at a major trade fair say a rising yuan and soaring production costs are bigger threats to their businesses than the prospect of a trade war with the United States.

Dozens of exporters at the Canton Fair in Guangzhou, southern China –  showcasing businesses ranging from auto glass to electronic devices – complained their profits were being eroded by the yuan’s appreciation against the US dollar.

Foreign buyers also told the South China Morning Post the yuan’s rise is raising prices and lowering the competitiveness of Chinese products.

“Profit margins for home electrical appliances are less than 10 per cent and the rising exchange rate over the past year has eaten them away,” said Jack Han, vice-general manager at Anhui Leader, an electronics company producing cables and accessories for household appliances, telecommunication equipment and power supplies. 

“I believe all Chinese export-oriented businesses are victims of the sharp rise in the yuan,” said Han.

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The Chinese currency has gained more than 10 per cent against the dollar since US President Donald Trump took office in January 2017 – and it has strengthened about 3.6 per cent against the greenback so far this year. 

Trump, meanwhile, complained in a tweet on Monday that “Russia and China are playing the currency devaluation game as the US keeps raising interest rates. Not acceptable!”

The People’s Bank of China set the midpoint rate for the yuan at 6.2817 per dollar on Wednesday.

Compared to threatened import tariffs and other restrictions from Washington, which only apply to specific US markets and set products, an appreciating Chinese currency has a broader impact on all China’s exporters even when their main markets do not include the US, business executives said. 

Yang Mei, a saleswoman from an auto glass firm in Heshan in Guangdong, said her company has had to increase its prices by about US$5 per square metre amid rising costs and the strengthened Chinese currency.

“We don’t dare ask a higher price because we are facing fierce competition from counterparts on the mainland and in southeast Asian countries, like Thailand,” she said.

China’s exports fell in March from a year earlier and recorded a trade deficit last month, although its surplus with the United States remained large, the nation’s customs administration said last week.

Foreign buyers at the trade fair said products made in China were increasingly expensive, partly due to the stronger yuan.

“The prices this year are too high, about 30 per cent higher than my expectation” said James Luke, a buyer from Kenya looking for agriculture machinery. 

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Nabil Hamwi, who runs a trading company in Canada, echoed the view: “The prices are not good or fair this year. Many exhibitors at the fair have raised their offer. If prices are too high, I may consider other markets.”

Joyce Chen, account manager at a firm manufacturing wire connectors for construction, lighting and home appliances, said Chinese firms faced a range of difficulties. 

“There will be greater uncertainties in the market for us – an escalating trade war to come … but no way to help covering part of soaring manufacturing costs, like labour, rents and raw materials.

“The only way might count on tax reductions and exemptions from the Chinese authorities if the trade war can’t be avoided. China’s exporters can do little but take the hits,” she said.