SHANGHAI -- The decision by China's central bank on June 19 to let the renminbi's value rise may someday hamper the nation's electronics exporters, but automakers have nothing to fear.
Before the announcement, the renminbi was pegged at a fixed rate of 6.83 for one U.S. dollar. The bank is widely expected to allow the Chinese currency to strengthen only about 3 percent this year.
Even if the renminbi rises more than that, automakers and suppliers will be insulated from the impact. Here's why:
1) China has become the world's largest auto market. Attracted by that demand, most major automakers have built production facilities in China to serve the local market. The auto industry's classic strategy -- build cars where they are sold -- is a natural hedge against currency fluctuations.
2) Every domestic Chinese automaker has tried hard to boost exports, but they are constrained by poor product quality. Few have sold any sizable volume overseas, and none has successfully penetrated mature markets such as the United States and Europe. The impact of a stronger renminbi on these companies will be limited.
3) Luxury brands such as Daimler AG and BMW AG will benefit from the renminbi's revaluation, since imports account for about half their China sales. But Audi, which builds most of its products in China, is forcing its rivals to assemble more vehicles to keep their prices competitive. Because of China's stiff tariffs, a stronger renminbi isn't going to trigger a flood of imports.
4) Chinese exporters of auto parts will be hurt by a strong renminbi, but even they will survive. The Chinese market is growing so fast that suppliers will have little trouble finding customers.
The bottom line?
A stronger currency someday might cause China's makers of TVs, cell phones and other electronics to search for low-cost locales like Vietnam or Bangladesh. But automakers and suppliers are here to stay.
Yang Jian is managing editor of Automotive News China.