China’s exporters enjoyed the benefits of a weak yuan. Now that’s changing

BEIJING — Chinese companies seeking growth from exports face a new challenge: a strengthening yuan.

The “offshore” yuan traded in Hong Kong surged Monday against the U.S. dollar to its strongest level for 2024 — below 7.1 — before weakening slightly to around 7.18 as of Wednesday afternoon, according to Wind Information.

The sharp moves came amid a global stock market sell-off as investors reassessed their outlook for the U.S. economy and potential interest rate cuts. High rates have bolstered the U.S. dollar and related assets.

A strong greenback has also helped keep the Chinese yuan weak, which in turn kept Chinese exports competitively priced abroad. After steadily weakening in the first half of the year, the offshore yuan has strengthened against the U.S. dollar over the last month.

Many trade companies, especially smaller ones, have “currently adopted a strategy of ‘preferring not to take orders rather than take loss-making orders,'” Winnie Wang, president of the Shenzhen Cross-Border E-Commerce Association, said Tuesday in Chinese, according to a CNBC translation.

She noted the case of one such company, which made 20 million yuan ($2.8 million) in revenue during the yuan’s weakening during the first half of the year, allowing it to raise employee salaries. But she said the company did not win a single order in July because the stronger yuan forced it to repeatedly raise its prices.

Ryan Zhao, director at an export-focused company called Jiangsu Green Willow Textile, said Tuesday that recent fluctuations in foreign exchange will cut into about 2% of profits on accounts receivable this month.

“We are concerned that a prolonged appreciation of the yuan will lead to price increases by Chinese suppliers, which will affect the export businesses,” he said in Chinese, according to a CNBC translation. He said the company’s way of dealing with exchange rate fluctuations is to negotiate a middle exchange rate with the customer.

China reported slower-than-expected growth in U.S. dollar-denominated exports for July on Wednesday, while imports surprised with a better-than-expected increase.

Exports have stood out as a bright spot as China’s economic growth slows. Many local companies from automakers to e-commerce players have accelerated overseas expansion plans to capture opportunities for faster growth abroad.

That also means Chinese companies are now more exposed to currency fluctuation risks. China’s foreign exchange regulator has in the last two years published guides on how businesses can mitigate such risks.

“Apart from geopolitical reasons, Chinese companies are increasingly focused on hedging currency risk because they are localizing operations globally – which makes their operations more complex than they used to be,” said Chris Pereira, president and CEO of consulting firm…