Strengthening Yuan Hits Chinese Exports

While from the outside China seems to be unstoppable in gaining market share around the world, China’s exporters are facing one significant problem at the moment: the rising value of the renminbi (RMB), according to an article by Tranalysis, an import and export data analysis provider.

The rising currency is cutting into profits and forcing some to raise prices, which is reducing demand and competitiveness overseas, Tranalysis said.

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Strengthening Yuan Hits Chinese Exports

Source: Xe.com

The RMB was valued up by the government over the course of 2017 with an annual growth of 6.3%. As a result, the exchange rate from USD to RMB has been changed from 6.9 at the beginning of 2017 to 6.3 at the beginning of 2018. 

The higher value of the Chinese RMB is reducing the overall revenue of exporting companies, which are focusing mainly on overseas profits.

In 2018, RMB has continued to strengthen. As of 2 February 2018, the USD/CNY exchange rate was 6.2885. The continuous increases in value are making exports for Chinese enterprises more difficult, and the trend does not look to be changing anytime soon.

According to experts, there is potential for strong growth of the Chinese yuan this year. China’s currency strength has more room to grow. In 2018, the RMB is off to a stronger start than 2017, appreciating by 2.6% versus the US dollar, or over 30% annualised.

Historically, the Chinese currency only moves 6% to 7% in a year. For example, looking back to the year when the Chinese currency moved the most, which was in 2016, a decline of 6.8% was witnessed.

But the higher value of RMB is not only raising problems for the domestic exporters. Other countries are complaining about China’s currency value growth. In fact, the development is causing some criticism that the export giant has been deliberately suppressing its currency to gain economic advantage over its trading partners. Some experts even have said the world’s second-largest economy is also propping up its currency to appease U.S. President Donald Trump.

Some Chinese export examples

According to China Customs, the country exported almost 200 thousand tonnes of cornstarch in the first three quarters of 2017, up by 150% over the 78,000 tonnes the same period in 2016. The prosperous export business boosted the domestic market. However, in regards to starch sugar, due to rebounding domestic prices, the appreciation of the RMB, and slumping international sugar prices, China’s export volume of starch sugar declined in September down 12.74% YoY.

China’s TiO2 market remained stable in the last months. Although some large-scale manufacturers quoted higher prices for their products, no great changes were seen in the actual transaction prices thanks to the appreciation of RMB and sluggish downstream demand.

China’s glyphosate prices continued falling in February 2018. The prices early in the month were lower than at the end of January. It is predicted that the prices are unlikely to rise before the Chinese Spring Festival in view of current supply and sale. What’s more, the appreciation of the RMB recently also restrains the enthusiasm for export, according to Tranalysis.

The Chinese phosphate fertilizer industry, already suffering from overcapacity problems, is set to face more challenges by the ongoing appreciation of the RMB, which could push many producers, especially DAP producers, to the edge of extinction. If the FOB price of DAP is RMB3300/t, the appreciation of the renminbi from 6.3 to 6.16 to the USD means that prices have risen by USD11.90 per tonne. Chinese DAP exporters have to raise prices or absorb the loss. But overseas buyers won’t accept price increases, especially in the current international DAP market. In the meantime, the exchange rate of RMB to USD is still keeping an uptrend. Correspondingly, the pressure to phosphate fertilizer industry posed by the RMB appreciation will continue, let alone the undervalued international DAP price, according to Tranalysis.