Disruption Report #15: A weaker dollar, and Chinese factories are absorbing cost increases

Businessman buried under crumpled pile of papers with a help sign

A Weaker U.S. Dollar and a Stronger Chinese Yuan

Bloomberg writer, John Authers, offers us this headline: Dollar May Be on Brink of Sustained Downtrend.” That’s bad news for the toy industry as he is also predicting a rise in the value of the Chinese Yuan.

China produces 86% of the world’s toys, and the (hopefully) receding pandemic has slowed any manufacturing movement out of that country. Any hopes for India as an alternative source of goods were dashed, at least for now, by that country’s continuing decimation by coronavirus.

That means that the relationship between the dollar and the yuan is pivotal to producers, retailers and consumers. An increase in the two countries relative currency rates means that that the actual cost of goods goes up.

The impact of relative currency valuations is much more significant than a rise in the cost of plastic or cardboard. An increase in the value of, for example, plastic only affects that portion of the cost of the product. A currency devaluation is different. When a currency is devalued, it affects the price of the entire product.

Chinese Factory Owners Are Not Investing in Expansion

Chinese factory owners are confronting higher input prices, an increase in demand, and uncertainty about the post-covid global market. As a result, they are being conservative, and not investing in increased manufacturing capacity. That’s according to the article “World Faces Longer Supply Shortage as China’s Factories Squeezed.” As the report puts it:

[M]any Chinese manufacturers,[don’t] plan to expand operations — a reticence that could slow the pace of China’s economic growth this year and prolong a shortage of goods being felt around the world as demand picks up.

The result could mean continued stress on toy and consumer products companies and retailers struggling to get their orders filled on time or at all.

Chinese Factories Are Softening Inflation

This week, MarketWatch writer Jefferey Bartash gave us this headline: U.S. inflation surges to 13-year high – and consumers are paying the price.” It could, however, be worse. That is according to Chinese economist, David Qu who states:

Chinese industry is absorbing significant cost pressures from rising commodity prices — damping the inflationary impact for the rest of the world. Will it last? Our analysis of gross margins suggests it could for a while longer: downstream industries — where the cost crunch is most severe — still have a small cushion. David Qu, China economist

2 thoughts

  1. The pandemic has dashed India’s chances of alternative sources for manufacture of toys in not true. Despite what
    the situation is, Indian toy factories are functioning as usual. The leading factories have taken the initiative to arrange to vaccinate all their employees and workers. The fact that all these major factories are expanding and increasing their capacity is proof enough that India is emerging as an alternative source for manufacture of toys. Indian labour is still much cheaper to China, there are no long festival holidays for the factory and importantly all factory engineers can speak and understand English. Most customers in USA, Canada, Europe, UK and Middle East find the landing costs of toys is much cheaper from Mumbai Indian port than anywhere from China. In the next five years, everyone will find India emerging as a major source for contract manufacture of toys

Leave a Reply