Apr 25, 2012

China Watch – Outlook of The Yuan

Speculation about a revaluation of China’s currency, the yuan, has been ongoing in the Western press for months. To date, the Chinese have said little more than “We will depeg the yuan from the dollar when it is to our benefit.”

That time may be at hand. China’s first quarter growth in gross domestic product was an astounding 11.9%, putting their economy at risk of overheating; allowing the yuan to appreciate would be one way for them to cool the flames a bit. Then, on May 11, the China Daily reported that “The People’s Bank of China… is sending a clear signal to unpeg the yuan from the US dollar.”

Since 2008, the exchange rate has been 6.82 yuan to the dollar. A depegging of the yuan would most certainly cause it to rise. The question is, how much?

As they did when they originally allowed the yuan to float in 2005 (it was later pegged back to the dollar in 2008 when the global economic crisis hit), the Chinese will more than likely control how much the yuan can fluctuate over a given period of time. This means any changes in prices would be gradual, and small.

So what does this mean to you? If the yuan is depegged by this summer, my guess is we could see prices affected 2-5% for the remainder of 2010. The products you import from China will still be competitive though; see the average labor rate of a Chinese worker later in this newsletter.

Tricks of the Trade – True Market Research

Occasionally, we receive an inquiry from someone who’s come up with an idea for a new product they think will sell. They’ve shown their product to some friends, and a few prospective customers, and are ready to go to production. While we’re happy to source their product, it would be wise for them to invest more time and effort in market research.

True market research increases the probability for success; it also reduces the chances that you’ll be stuck with a load of inventory no one will buy.

Here are several key components of the process:

1. Assess your customer base. Who is your ultimate customer? Will you sell through distribution channels, direct to the end user, or both? How large is your target market in annual sales, and how will you reach your prospective customer base?

2. Talk to as many of your potential customers as possible. A potential customer is someone who might be willing to trade their hard-earned money for your product. If your product will pass through a distribution channel to the end user, talk to both. If end users like the product but distributors won’t sell it, you’ll hit a wall.

Here’s a list of questions to consider:

  1. Does the product need to be changed? Might doing away with some unnecessary features make it more competitive? Or would it be better to upgrade the product and sell it for a higher price?
  2. How do they see your product in comparison to the competition? What would make it stand out?
  3. What is the retail price that will get an end user (or distributor) excited?
  4. How much profit margin does a distributor want to promote your product?
  5. If you’re talking to a distributor, how many do they think they could sell in a year?
  6. How will a distributor market your product? Point of purchase sales? The internet? Telemarketing, or through a sales force?
  7. Ask about the packaging—especially if you’re selling to a distributor. Is a plain box enough, or is a unique package design with color graphics to help sell the product required?

Once you know all of the above, you’ll have a better feel for how you should market your product, how much it should sell for—and how much money you could realistically expect to make.

The Average Wage in China.

For persons living in urban cities in China, the average wage per month for a Chinese worker is 1,770 yuan—the equivalent of 260 US dollars. This works out to $1.63 an hour for a four week month. In comparison, the U.S. Social Security Administration reports that the average wage for a U.S. citizen in 2008 was $19.85 per hour, before taxes.

About us

Since 1991, Global Trade Specialists, Inc. has helped companies of all sizes get their products made in China from manufacturers of quality products. We are an American company who works with three trading groups in China with immediate access to thousands of manufacturing companies. We source most products made from metal, plastic, wood, stone, glass or textiles; from prototype to production. Many of our customers are first time importers; we walk you through the entire process.

More on what we do.
Products we source.

Read testimonials from some of our customers.

Email us for a free quote.

Sources:

Average Wage in China
Average Wage in the U.S.
China’s GDP Growth