Yuan Strengthening Causes Profitability Decline and Outcry Among Chinese OEM Companies

Claims of inevitable price adjustments with overseas contractors... Concerns over fallout for foreign companies with production bases in China
Calls to overcome subcontracting industry structure through fostering own famous brands like Samsung

[Asia Economy Beijing=Special Correspondent Jo Young-shin] As the Chinese yuan strengthens (exchange rate falls), worsening the profitability of Chinese export manufacturing companies, Chinese state-run media has argued that price negotiations with overseas companies need to be revisited. Chinese companies producing home appliances through the Original Equipment Manufacturer (OEM) method are facing difficulties due to the direct impact of the yuan's appreciation.

The Global Times reported on the 6th that the yuan's strength and rising international raw material prices such as copper have significantly deteriorated the profitability of Chinese home appliance OEM manufacturers.

The media outlet stated that despite the global COVID-19 pandemic, Chinese home appliance OEM production lines have been operating nonstop, but due to the falling exchange rate and rising international raw material prices, companies are earning almost no profits.

The Global Times mentioned that a Chinese company producing and exporting robot vacuum cleaners via the OEM method recently raised its supply prices with overseas principal companies, and argued that other Chinese OEM companies should renegotiate prices considering the yuan's strength and rising international raw material prices.

The yuan's central parity rate against the US dollar announced by the People's Bank of China on the 5th was 6.4760 yuan. The yuan's parity rate falling below 6.5 yuan per dollar is the first time in 30 months since June 25, 2018 (6.4893 yuan per dollar). While the yuan traded around 7 yuan per US dollar from May to July last year, it dropped to the 6-yuan range in September and continued to decline, falling below 6.5 yuan.

China's foreign exchange authorities are allowing the yuan's appreciation. From the perspective of the Chinese government, which announced the dual circulation policy focused on domestic demand, the yuan's strength can lead to improved import profitability.

The yuan's appreciation, conversely, worsens export profitability. This is why Chinese OEM companies are raising their voices. The international raw material prices, including copper, that Chinese OEM companies cite are also soaring. On the 5th (local time), copper prices rose more than 2.5% on the New York Mercantile Exchange, reaching the highest level since January 2013.

A source from the Chinese home appliance industry said, "The yuan's strength will significantly reduce the profits of Chinese OEM manufacturers. If supply prices are not adjusted with overseas principal companies, many companies may face bankruptcy."

The Global Times expressed concern that "most Chinese OEM manufacturers are small and medium-sized enterprises," and "these companies have less bargaining power compared to famous overseas home appliance companies with production bases in China." The media also added that China should foster global brands like Samsung, Siemens, and Sony to move away from the subcontracting industrial structure in home appliances.

If demands for supply price adjustments by Chinese OEM companies spread, companies from Korea, the United States, and Japan that have production bases in China are expected to suffer considerable damage.

This content was produced with the assistance of AI translation services.