Stronger yuan not all bad for makers

A Lastest News about Foreign Exchange in China

Last updated: 12 Aug 2011

The strengthening currency has been reducing exporters' margins and ability to set fixed price points. But it has also made importing materials, components and machinery more affordable.

 

China's export manufacturers may be reeling from the effects of the yuan's continued appreciation, but a number of them concede there are some benefits to be gained.


For one thing, importing raw materials, components and equipment has become less expensive and may sometimes be a more cost-effective option. This is assuming there are no changes in other factors determining prices, which are quoted in US dollars.

 

Chile is one of the main sources of paper pulp globally. But because of the 2010 earthquake, prices have risen significantly. The stronger yuan, however, has made paper pulp more affordable. Instead of paying 4,896 yuan for a $720 per ton contract price at a 6.8 exchange rate, China importers only need to shell out 4,572 if the conversion is at 6.6. This translates to cost savings of 144 yuan per ton.


But the inadvertent discount can only be gained if manufacturers import directly from suppliers and not buy from local distributors. One downside, however, is the long lead time. A maker of CCTV cameras and monitors, and car rearview and media systems, SharpVision Co. Ltd purchases key components such as lens in South Korea and IC chips from Sony and Sharp in Japan. Unlike those sourced from local distributors, imported components come in their original sealed packaging. Some of those available from domestic agents are assembled in China. But apart from the shipping time, manufacturers have to wait at least 20 days before the imported components can be cleared and released. As such, buying directly from overseas suppliers is not a viable option if the components need to be acquired urgently.

 

The stronger yuan has made it less expensive for companies to bring in imported machinery as well. Guangdong Galanz Enterprise Group Co. Ltd, for instance, was able to save almost 3 percent when it bought machinery from Italy for its refrigerator, washing machine and dishwasher factory in Zhongshan, Guangdong province. The company is now planning to import more equipment in the next two years to boost production capability.
 

Nudge to move upmarket

 

While there are other compelling factors, the yuan's appreciation is gently pushing makers out of basic, low-end manufacturing.


Many China suppliers have grown complacent with simply processing and assembling entry-level goods for OEM clients. While there are makers with enough experience and financial capability to shift to upscale production, particularly those in Guangdong and Zhejiang provinces, most do not want to take the risk. They do not want to invest significantly in labor, materials and time with very little assurance their efforts would be successful.

 

The continued appreciation of the yuan, however, has gradually made businesses more receptive to moving upmarket. Several companies launched high-value lines this year, products that helped them gain leverage during price negotiations and maintain profit margins.
 

 

Read the full report at Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.


Posted: 11 February 2011, last updated 12 August 2011

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