MSNBC: Chinese Exporter’s Suffering From RMB

Sunday, January 14, 2007 21:16
Comments Off on MSNBC: Chinese Exporter’s Suffering From RMB

While drinking my Starbucks Latte I found an article on MSNBC entitled China’s exporters suffering due to currency rise.

It starts off by telling the story of Hebei Lihua hat manufacturer with 1800 employees that shipped some 4 million hats last year, and how due to the 6% change in RMB in the last 18 months they are looking to cut waste in order to cut costs.

The author contends that the success of Washington’s efforts are now paying off, and Chinese suppliers are feeling the pinch.

What the author failed to consider is the fact that a hat manufacturer has little in terms of barriers to entry, lots of competitors, and with 4 million units sold, I would have a hard time believing they are able to convince anyone to pay more than a couple points above cost due to their “superior quality”.

More than likely the manufacturer is looking to save costs because not only is that a smart thing to do, but he is probably getting killed by the hundreds of other manufacturer that are offering hats at a lower price than he is. It is NOT an issue of RMB, it is an issue of the competitive nature of the hat industry.

A couple more paragraphs down, the reporter then writes what I believe is the most interesting if not ill informed comment:

The yuan’s rise is small compared with swings in the yen and the euro against the dollar in recent years. But it is jarring for Chinese exporters, whose profit margins are thin and whose only competitive edge is low prices. Unlike Japanese or European companies, they lack technology and brand names that might keep American customers loyal even as prices rise.

The only competitive advantage is low prices? I guess the writer has not seen the beneath every IBM there is now a sticker that says Made in China, or that their Haier refrigerator is made by a Chinese company, or perhaps that China is now working on their own 3G platform.

I will agree that a large portion of goods that are produced are done more cheaply than could be done in the U.S. or many parts of the E.U., but saying that the exporters only competitive advantage is cheap labor is just wrong and shows that the amount of time the writer spend in Bar Rouge or Park 97 was more than any time they actually spent in the field.

The author did offer a very interesting quote from Mei Yimin, Director of Foreign Trade of Anji Henglin Furniture Company, on the second page:

“It is even worse that the appreciation is taking place bit by bit, which makes it more difficult to negotiate with distributors,” Mei said. “If it happened by a big margin overnight, they would have no option but to share the loss.”

This quote brings up a very interesting point that should have been developed further as it is something that we see everyday when buying our raw materials. Wood, aluminum, Plastics, and nearly everything else we buy has seen a lot of pricing variance for our raw materials (see graph of AL pricing) and it is nerve racking sometimes for us and our clients to try and guess what it will do.

Sometimes we are right and we are able to buy forward to hold a price, but other times we are wrong and we have to move the pricing.

I am sure that the American public (main consumers of MSNBC) will take comfort in this story, and maybe that is the real purpose of this piece. After all, the American public has been lead to believe that China’s RMB valuation is behind the loss of industry in their cities, and as China’s exporters feel the squeeze, that will be a sign of victory right?

For me, I will remain more skeptical. I actually find it interesting that the stats used as part of the article show that the trade gap and exports are reaching all time highs. so… who again is having problems?

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