Yuan’s upward march hurts China exporters

Chinese yuan banknotes are counted at the Huangsha Seafood Wholesale Market in Guangzhou, Guangdong province. Many exporters complain the rise in the yuan is hurting China’s export competitiveness.

Dow Jones/Beijing

Exports in December were up just 4.3% compared with the same month a year earlier, down from a much stronger 12.7% year-over-year rise in November, according to customs data released on Friday. Even accounting for possible distortions in the year-earlier jump in exports-which many economists attributed to so-called hot-money inflows misreported as trade-the pickup in exports that China had hoped as the global economy improves has yet to materialise.

The US has long argued that the yuan has been kept artificially low to boost Chinese exports and maintains it is still undervalued. China says the yuan is now close to equilibrium; economists are divided on the question.

Either way, the strengthening yuan is hurting Chinese exporters, especially makers of low-cost manufactured goods.  China sent 15% fewer electronic calculators abroad in the first 11 months of 2013, 12% fewer umbrellas and 21% fewer cigarette lighters, Chinese data shows as low-end manufacturers abandon China for cheaper locations.

Beijing wants its exporters to move up the value chain to make more high-technology products. It sees this shift, along with an attempt to rely less on credit-fueled heavy industry and more on domestic consumption, as crucial for the economy’s long-term success.

China’s Customs Administration, in a recent survey, found that yuan appreciation significantly raised costs for two-thirds of exporters.

“To deal with the issue, I can only recommend that exporters actively upgrade their products and produce more value-added exports,” said Zheng Yuesheng, a spokesman for the administration. But China’s state planners have to oversee this shift while maintaining economic growth, which has fallen to around 7.6% from double-digit levels in recent years, and ensuring that unemployment doesn’t rise.

Many exporters complain they are severely challenged by rising wages and other costs that have crept up in recent years. The appreciation of the yuan, also known as the renminbi, is another headache, which makes China’s goods more expensive overseas and reduces profits in local-currency terms.  “Rising wages and the yuan are a tremendous problem for us,” said Uwe Hutzler, the general manager of a Chinese company that supplies leather to clothing manufacturers. “We have to pay our expenses and salaries in renminbi but our invoices are in dollars.”

Chinese officials point out that a stronger yuan also means cheaper imports. That could help China achieve its goal of boosting domestic consumption as imported consumer items become more affordable.

“Yuan appreciation will surely lift exports prices and undermine our exports competitiveness. But...yuan appreciation also helps lower our import costs,” said Zheng, the customs spokesman.

China remains an export powerhouse for manufactured goods like electronics and machinery. The nation’s share of world trade remains above 10% despite cost pressures. Data released Friday showed China’s total imports and exports exceeded $4tn in 2013, overtaking the US as the world’s largest trading country.