Some Chinese firms now telling clients: Pay in euros, please

Some Chinese firms now telling clients: Pay in euros, please
Posted by Raja Petra
Thursday, 01 May 2008

Exporters in a bind as US$ slips, demand softens and workers demand more pay

Chinese exporters face a double whammy as the dollars that they earn buy fewer yuan, even as Chinese workers are demanding fairly sizable wage increases.


FACING the double-barrelled threat of a falling United States dollar and weakening American demand, some Chinese exporters are starting to ask European customers to pay in euros.

Others are trying to increase domestic sales. This, in a nation whose economic juggernaut was built on exports.

Drastic times call for drastic measures. And the dollar's accelerating fall against China's currency - down 4 per cent so far this year, after dropping 7 per cent last year - has left businesses across China nursing losses and trying to figure out how to raise prices for overseas buyers.

Mr Ma Lin Ping, the general manager of Taizhou City Qizhou Industry, said his company lost US$43,000 (S$58,553) on a single deal last year because of the dollar's tumble against China's yuan or renminbi.

The company agreed at the end of 2006 to send 16 shipping containers full of collapsible wood houses for use in gardens and at the beach. When the company finally completed the deal at the start of this year, the payment was in dollars that had lost nearly a tenth of their value in yuan.

Since the start of this year, 'I quote prices in euros to all my European clients', Mr Ma said, adding that the company was also starting to design products for the Chinese market.

Companies that sell mostly to the United States have not yet tried to set prices in euros.

Instead, Mr Chen Mang, a manager at a musical instrument exporter, said his company now quoted dollar prices valid only for two or three months. That limits exposure to declines in the dollar over longer periods of time.

Making matters worse for many Chinese companies, American buyers have become very tough negotiators, as the US economy has slowed.

'They're just extremely sensitive to any price adjustment I make,' said Mr Wang Ming Guang, a sales manager at a company that exports salt and pepper shakers and spice racks.

Chinese exporters face a double whammy as the dollars that they earn buy fewer yuan, even as Chinese workers are demanding fairly sizable wage increases.

Some European buyers have agreed to pay in euros, which protects them from the risk they previously took that the dollar would strengthen against the euro. But others have been so delighted with the fall in the dollar that they still insist on paying in dollars. The Chinese currency has been fairly stable against the euro over the last several years.

China intervenes intensely in the currency markets to slow the rise of the yuan and preserve the competitiveness of Chinese goods in foreign markets. It has quintupled foreign reserves in the last five years to US$1.68 trillion last month.

Despite the hesitancy of American buyers, several exporters said they were passing on sizable price increases for shipments to the US.

Mr Chen, the sales manager at Shanghai Lansheng Grand Luck Import and Export, a musical instrument company, said his company had raised prices sharply - by 10 per cent over the last year to offset the fall of the dollar, and by another 5 per cent to cover rising costs in China for labour and raw materials.

NEW YORK TIMES