Facing the double-barreled threat of a falling 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. The dollar’s fall against China’s currency has been accelerating — it is down 4 percent so far this year, after dropping 7 percent last year. That has left businesses across China nursing losses and trying to figure out how to raise prices for overseas buyers, Chinese executives and sales representatives said in interviews here at the Canton Trade Fair. The fair runs through Wednesday.
Ma Lin Ping, the general manager of Taizhou City Qizhou Industry, said that his company had lost $43,000 on a single deal last year because of the dollar’s tumble against China’s currency, known as the yuan or renminbi.
The company agreed at the end of 2006 to send 16 shipping containers 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 make products for the Chinese market.
Mr. Ma’s company already sells 70 percent of its goods to Europe. Companies that sell mostly to the United States have not yet tried to set prices in euros.
Instead, Chen Mang, a manager at a musical instrument exporter, said his company now quoted dollar prices that were 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 tough negotiators as the American economy has slowed. “They’re just extremely sensitive to any price adjustment I make,” said Wang Ming Guang, a sales manager at a company that exports salt and pepper shakers and spice racks.
Chinese exporters face a double blow as the dollars that they earn buy fewer yuan even as Chinese workers are demanding fairly sizable wage increases, at least in percentage terms.
At the Jiangsu Easthigh Group Import and Export Company in Nanjing, workers’ monthly wages have risen in the last year to 1,800 renminbi, or $257, from 1,600 renminbi, said Stephen King, a salesman. The company makes elaborately carved wooden chairs, vases and Buddha statues.
The wage increase works out to 12.5 percent in renminbi terms, and nearly double that in dollar terms after the effects of the yuan’s appreciation are included.
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 other European buyers have been so delighted with the fall in the dollar and the falling cost of dollar-denominated imports from China that they still insist on paying in dollars, said several Chinese exporters, who added that they had agreed to continue accepting dollars from these customers.
The Chinese currency has been fairly stable against the euro over the last several years, even as the dollar has fallen to 7 yuan, from 8.28 yuan in the summer of 2005. European Union officials have been increasingly vocal in recent months in demanding that China allow the yuan to rise against the euro as well.
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 $1.68 trillion last month.
Despite the hesitancy of American buyers, several exporters said that they were passing on sizable price increases for shipments to the United States.
Mr. Chen, the sales manager at a musical instrument company, the Shanghai Lansheng Grand Luck Import and Export Company, said his company had raised prices sharply — by 10 percent over the last year to offset the fall of the dollar, and by an additional 5 percent to cover rising costs in China for labor and raw materials.
Other exporters cited similar increases, part of a broader pattern of rising prices for goods from Asia that has prompted some economists to warn that the United States was starting to import inflation from the region.
SeaSunStar, a manufacturer of small fountains for the home and garden with their own recirculating water systems, sometimes needs many months to make special models. For deals closing at the end of this year, the company assumes the dollar will have fallen to 6.5 yuan, from 7 yuan now, said Charlie Xu, the sales manager.
Quite a few Chinese exporters are concluding that the best way to minimize currency risk may be to turn inward and sell more at home. Mark Yuan, the president and chief artist of the Hefei Hande Artistic Lamps Factory, which makes stained-glass lamps and windows, began selling his products in China just a few months ago and has found that these sales already account for 20 percent of total revenue.
“In big cities there is demand; people are wealthier,” Mr. Yuan said. “We are gradually increasing our emphasis on the domestic market until we can forget about the export market, because the profit margins on exports are so thin.”