More than one-third of suppliers said they expect overseas shipments to begin declining when the yuan strengthens by at least two percent. Another 32 percent believe a three percent rise will trigger a slide in sales.
Increasing export prices is the main measure suppliers said they will take to cope with a stronger yuan. A few companies have even started quoting prices based on a 6.6 exchange rate.
"Many companies, particularly those in labor-intensive industries, are running on paper-thin margins and have no room to absorb currency exchange losses. Such businesses are likely to raise prices once the yuan strengthens," said Craig Pepples, Global Sources' chief operating officer. "By working more closely with large buyers, some exporters are focused on adding new features to enhance the value of their products and justify a higher price point."
In addition, suppliers said they plan to take other measures to cope with the yuan's appreciation:
- 30 percent intend to increase focus on the domestic market;
- 15 percent of exporters plan to use more imported materials;
- 10 percent believe focusing on high-end products may bring in higher profit;
- 7 percent said they may use financial instruments such as foreign currency options or NDF; and
- 3 percent of suppliers intend to use the yuan as a currency for trade.
Labor shortage still an issue
Sixty-four percent of suppliers said they continue to be in need of workers, even as monthly wages have been increased. The shortage is more prominent in areas outside the Pearl and Yangtze River Delta regions, as salaries there are lower than in the coastal provinces.
In fact, 75 percent of respondents said their employees have sought higher salaries or made other demands in the past three months.
In addition to raising monthly wages and overtime pay further, companies are improving the living conditions in factory dormitories to retain and attract workers. Some dormitory rooms now have individual beds and computers with Internet connection.
High material costs, price competition main challenges
Although there are concerns regarding the yuan's appreciation and the labor shortage, exporters are more worried about rising material costs and intensifying price competition. Suppliers in Guangdong are concerned most about price competition, with 26 percent of respondents based there indicating this as the main challenge.
Among surveyed suppliers:
- 21 percent said higher material costs was their biggest concern;
- 20 percent cited price competition as a critical issue;
- For 18 percent, the labor shortage was the key challenge; and
- 12 percent said the yuan's appreciation was their main concern.
