China’s stronger currency hurting exports to Africa

While many Western trade partners view the appreciation of the Chinese RMB favorably, as it makes their products cheaper for Chinese consumers, it also has the equal effect of making Chinese products more costly in their own countries. Some elements within Western governments and the trade industry shrug off such concerns, voicing the opinion that it can only help domestic manufacturers. However, in Africa it’s a different story as many consumers have come to rely on low-cost Chinese made goods much more heavily then some of the Western countries:

Concerns about rising inflation in China are also pushing Beijing to allow for more frequent fluctuation in the exchange rate. On Monday the yuan hit a record high of 7.1996 per US dollar. And analysts forecast the yuan could gain between five and nine per cent this year.

A stronger currency will not only erode the margins of traders but also make Chinese exports ranging from clothing and shoes to batteries and steel more expensive for African consumers who have become increasingly dependent on China-made goods.

China exported some $8 billion of manufactured products to the continent in 2006, according to UN trade data, including $257.5m to Kenya, almost five times the amount in 2000. Kenya also buys significant quantities of Chinese machinery, textile yarn, vehicles, batteries and steel.

As the article mentions, things are only going to get worse as China continues to reduce low-cost, high energy consumption manufacturing and replace it with higher end exports:

China wants to see a long-term shift in direction towards higher value, capital-intensive manufacturing. That will help it tackle its mammoth trade imbalance by squeezing out some of the small players in low-value added exports such as garments, shoes and certain car parts.

Value added tax rebates previously offered on exports of a range of goods are gradually being removed and new environmental laws are restricting expansion of factories. Many small producers are expected to close down under growing pressure.

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