Between July 2005-July 2008, the Chinese currency, the renminbi, also known as the yuan, appreciated 21 percent against the dollar. But due to a variety of factors, the price of Chinese goods exported to the United States only rose by single digits. Today, again, the Chinese currency is on the rise, but six factors are expected to keep Chinese prices from rising significantly or will have little upward impact.

Currency Appreciation: the Ying and the Yang

In recent years, in order to retain foreign marketshare, Chinese exporters absorbed much of their product price increases caused by the rise in the value of the renminbi. On the other hand, the higher valued currency allowed Chinese importers to get a better deal on global commodities and components. Combined, these factors had a neutralizing impact of the price of Chinese exports. This cycle is again likely to play out in a similar way.

Chinese Wages Unlikely to Rise Significantly, Even With Strikes

Highly publicized strikes in China, many of which have occurred at unpopular Japanese-owned firms, are unlikely to touch off a wave of additional wage strikes, experts say. Plus, wages are unlikely to rise as much as laws require.

Over the past several years, Chinese provincial laws have prescribed large increases in minimum wages. However, these often are ignored by factories that pay substantially lower rates and rarely recognize wage premiums for overtime. In efforts to offset wage increases that do occur, many factory owners have moved their production facilities inland where wage requirements are lower.

Shipping Cost Increases To Have a Minimal Impact on Export Prices

Following the world financial crisis, container shipping rates plummeted. In fact, container rates as low as $3,500 were realized in the first quarter of 2009. Since then prices have steadily escalated with peak shipping seasonal rates of $6,000 now quoted. Overall, however, the price increase is unlikely to have an impact on typical shipments valued between $50,000-100,000. Smaller shipments will have fewer units to absorb the shipping increases and therefore be affected to a greater degree.

Global Commodity Price Increases Will Affect Buyers Equally

Global commodity prices are anticipated to rise across the board, impacting buyers equally. For example, as oil prices vacillate, China’s costs will rise and fall along with those in the United States. Consequently, most net importers of oil will be affected in a similar way.

Chinese Real Estate Increases Have Less Impact on Commercial Buildings

Chinese real estate prices are, no doubt, driving up costs. But most of the real estate affected is residential, not commercial, according to several suppliers. In fact, due to the global slowdown, one supplier expects a rent reduction for his showroom with a lease renewal after two years.

Excess Factory Capacity Exists

Chinese entrepreneurs have created thousands of new factories over the last several years. While the recent economic crash wiped out many, competition for U.S. and other foreign markets continues to heat up in China. In addition, Chinese entrepreneurs are constantly seeking to improve productivity and lower costs. These factors have helped keep a lid on price increases.

Bob Heilman is experienced in the development of Asian sources of imported products. He is a consultant servicing a variety of markets. Bob can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.  This article appeared in Impact Analysis, September-October 2010.
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Robert Heilman
About The Author Robert Heilman
Bob Heilman is experienced in the development of Asian sources of imported products. He is a consultant servicing a variety of markets.




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