In Beijing’s latest attempt to stop the bleeding of its struggling economy, the Chinese yuan was devalued by 1.9% against the U.S. dollar, the steepest decline in greater than 20 years. One direct result of the devaluation is that Chinese-made goods will immediately become less expensive for foreign buyers. The big winners: China’s domestic smartphone brands. The big loser: Apple. In fact, the yuan devaluation caused Apple stock to fall as many financial analysts predict that iPhone prices will rise in China, one of Apple’s core markets.
Presently, Xiaomi is China’s leading smartphone manufacturer. Conversely, Apple dominates the “higher end” of the market, with iPhone prices much greater than Chinese smartphones.
Abe Eshkenazi, chief executive officer of APICS, a supply-chain industry trade group, stated that as a result of the yuan devaluation, “Chinese consumers and businesses will seek more domestic suppliers rather than now more expensive imported goods. This could be a China re-shoring trend.” In fact, the yuan devaluation will directly lower production costs at factories across China and will produce a financial boost to Chinese company exporters. As a result, Chinese products can be priced lower, the companies will experience less exchange loss and overseas revenue will be greater when calculated against the yuan.
Apple’s Chinese smartphone rivals will get a double boost as their revenue from overseas will increase and the cost of iPhones will likely increase, possibly deterring consumers from purchasing the already expensive product. Xiang Ligang, chief executive of Chinese telecommunications industry website cctime.com stated that, “Chinese tech companies across sectors are all pushing out into the world. The yuan devaluation will make these products that much more competitive overseas.” Arthur Liao, a financial analyst with Taiwanese bank Fubon echoed these sentiments stating that, “China’s sudden devaluation confirmed market concerns over China’s economic growth. [Analysts] expect weaker consumer demand for iPhones in China, and Apple may raise its product prices later if China continues to devalue its currency.”
Whether the yuan devaluation salvages the Chinese economy remains to be seen, but it is clear that Chinese manufacturers will benefit in the short term.
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