Chinese factory owners raised a cheer when authorities suddenly devalued the local currency last month.
As export contracts are usually billed in US dollars, firms were looking forward to a revenue boost in renminbi terms, hoping that the stronger income will help them offset higher employee wages and other costs.
But if what is happening in the toy industry is any indication, such hopes may have been misplaced.
“Many American retailers are thought to have dollar-denominated annual contracts with provisions that allow them to renegotiate if the currency moves outside a pre-established range,” John Baulch, publisher of Toy World wrote in a Hong Kong Trade Development research column.
“Some retailers sought to reap immediate benefits by exercising those clauses, while others are expected to bring the subject up during next year’s negotiations.”
UK and European retailers have been wasting no time to follow suit.
“Letters began to arrive at toy suppliers at the start of September, with Argos — the largest UK toy retailer — being the first to contact suppliers, asking them to submit proposals on how best to align pricing to current market conditions,” Baulch added.
Mainland suppliers were under pressure even earlier to maintain their pricing even as costs were going up. Now, they are being asked to lower the prices as the currency weakens.
“We were told by a number of retailers that as we are benefiting, they should too,” a supplier said.
It seems whatever gain mainland toy suppliers expect from the softer renminbi, they are not going to keep that for long.
Factory owners in other industries can only hope that their clients are less aggressive in pushing for lower pricing.
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