Lucy Liang, a sales manager for Jiangsu Zhongxin Toys Co.,
disappointed potential clients from the U.S. and Europe inspecting
the pink and yellow teddy bears crowding the toymaker’s stall at
China’s biggest trade fair.
“My boss orders us to turn down all the orders for the good of
the company” because China’s yuan may rise, crimping profit
margins, said Liang as she sipped pu-er tea in a corner of her
stand. “Even first-class economists can’t predict whether the yuan
will appreciate or by how much. How could we?”
The country’s toymakers accept profit margins of as narrow as 3
percent to stay competitive. The low profitability, coupled with
payment periods of three months or more, means they are
particularly vulnerable to currency fluctuations, said
Lin Songli, an analyst
with Guosen Securities in Beijing.
The yuan has gained 6.6 percent against the euro and 2.2 percent
against the dollar so far this year. It traded at 6.68 to the
dollar yesterday in Shanghai, compared with 6.83 at the beginning
of the year.
“If the yuan rises to 6 to the dollar, we’re doomed,” said Simon
Pan, general manager of closely held Zhejiang Huangyan Hongfan Toys
Factory. It’s raising prices by 3 percent to 5 percent to offset
the Chinese currency’s gains, and further increases would mean
losing customers, he said in an interview at his booth, which was
filled with educational toys and metal brainteasers destined for
the U.S.
Hanoi Meeting
Adding to the companies’ concerns, Asian leaders meeting in
Hanoi this week may discuss calls for China to accelerate yuan
gains after the Group of 20 finance chiefs agreed Oct. 23 in South
Korea to refrain from weakening currencies to boost exports.
China has capped the yuan’s rise to about 2 percent
since a June pledge to introduce more flexibility, leading to
criticism that it provides an unfair advantage to its exporters.
Premier
Wen Jiabao has said a
rapid climb for the currency would cause social and economic
turmoil, hobbling the world’s fastest- growing major economy.
Some manufacturers say they’ve already been affected by the
currency’s gains as clients from the U.S., Europe and Japan
continue to expect cheap prices when buying in China.
“Since the government re-valued the yuan, we have been declining
long-term orders -- anything beyond six months -- because we might
even lose money by then,” said Lin Ying, a sales manager at closely
held, Guangdong-based Shantou Meichang Plastic Factory, which makes
plastic blocks and beach toys. “If the yuan keeps rising, life
would certainly be even harder for us,” she said.
Inflatable Hot Tubs
Customers expect the same prices as last year, said Susie Ying,
general manager for
Shanghai Master Plastic
Products. The maker of inflatable hot tubs and beach
toys had to raise prices by about 15 percent, even as “most of our
customers can only accept a 7 percent to 8 percent rise,” Ying
said. Her company is trying to focus on more expensive items
because their margins tend to be better.
“From the purchase orders we received, high-value toys have
taken the lead on demand,” said Karson Choi, executive director of
Early Light International (Holdings)
Ltd., a closely held Hong Kong-based toymaker whose
clients include Mattel Inc. The company didn’t attend
the Canton Fair.
Still, Dalian Ponytoy Co., which sells
rideable toy horses and zebras at a wholesale price of $200, said
it’s also hurt by gains in the Chinese currency.
“Two months ago, the dollar-yuan exchange rate was 6.8, now it’s
6.65,” said Tony Nie, general manager of the closely held
Dalian-based company. “This has a huge impact on us. A few years
ago, the exchange rate was 8 yuan to the dollar.”
Geithner’s View
U.S. Treasury Secretary
Timothy F. Geithner said
during the G20 meetings that he expects China will allow the yuan
to strengthen because officials understand it’s in the interest
both of domestic growth and global economic stability.
Almost 70 percent of exporters project a decrease in orders if
the yuan strengthens by another 2 percent against the U.S. dollar,
according to a survey of 239 Chinese suppliers by Global Sources
Ltd.
“Many companies, particularly those in labor-intensive
industries, are running on paper-thin margins and have no room to
absorb currency-exchange losses,”
Craig Pepples, Global
Sources’ chief operating officer, said in an e-mailed
statement.
In contrast, Mattel, the world’s largest toymaker, posted a
profit margin of 9.7 percent last
year, while No. 2
Hasbro Inc. had 9.2 percent, according to data compiled
by Bloomberg.
Zhejiang Sunny Import & Export
Co., which sells wooden blocks that can be rearranged to
resemble vehicles and robots, tried to hedge against currency
losses. It billed in euros, then lost money when the currency
dropped against the yuan, officially known as the renminbi, said
manager Liam Zhu.
“We changed back to the U.S. dollar, but now the U.S. dollar is
fluctuating and the renminbi is still appreciating,” said Zhu.
extracted from bloomberg