China suppliers are convinced the yuan's appreciation will affect exports negatively, even if the currency strengthens only 2 percent against the US dollar. More than two-thirds of the 239 respondents to a Global Sources survey said overseas sales will be affected once the yuan climbs in value, although only 8 percent believe exports will be hit significantly.
The survey, which was conducted in July and August 2010, shows this sentiment is shared among suppliers across all production hubs. Manufacturers in Guangdong province, however, are more sensitive to movement in the yuan. More than one-third of respondents there believe exports will drop once the exchange rate rises to 6.71 to 6.64 to the US dollar. Companies in other hubs are confident sales will remain steady as long as the currency does not increase by 3 percent.
Although the yuan's de facto peg to the dollar has been lifted, it has not appreciated significantly. The strongest the currency has gained since it was decoupled on June 19 was on Sept. 27, when it hit a high of 6.6859, closing at 6.6923.
Despite the steady climb in the yuan's value of late, the US does not believe the currency is appreciating fast enough, and is expected to increase pressure on China in coming months. But, suppliers are of the opinion the yuan will strengthen no more than 3 percent this year.
Most companies, particularly those in labor-intensive industries, are running on paper-thin margins and have no room to absorb currency exchange losses. Such businesses are likely to implement commensurate price increases once the yuan strengthens more than 2 percent. Some suppliers, including silicone kitchenware manufacturer Foshan Dragon Polymer Co. Ltd and solid-state disk producer Joint-Horizon Technology Co. Ltd, have even started quoting dollar prices based on a 6.6 exchange rate.
Whether higher prices will apply to all product lines and export markets depends on the company. Both Foshan Dragon and Joint-Horizon raised prices across the board. Anviz Biometric Technology Co. Ltd, however, is planning to adjust prices for some export destinations first. This is mainly to gauge how much its customers are willing to accept and the impact on competitiveness.
Read the full survey results 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.