RMB Depreciation Cannot Save China’s Tire Export

“RMB depreciation will help drive the export and benefit our company. Currently, we export more than import.” Guizhou Tyre has said so recently on an online platform.

But such “good news” failed to excite Mr. Huang from a tire company inWeihai, Shandongprovince. On the contrary, what worry him most are expansion of influence of the anti-dumping and anti-subsidy probe launched by theU.S.and thinner profit margin.

Nominally benefiting export

China’s central bank adjusted the quotation mechanism of the central parity of RMB against USD in August 2015, from then on, the interest rate of RMB against USD kept falling.

It is generally believed that RMB depreciation is a boon for exporters as it help lower the costs and enhance the competitiveness of exports. Statistics show that every 1% depreciation in RMB will increase exports by 1.5 percentage points.

However, the situation doesn’t seem that optimistic for Chinese exporters.

China’s tire industry is suffering internal and external troubles. RMB depreciation brings only nominal benefit, most tire producers won’t depend on this even if it eases the pressure on export for a while, said an industry insider.

Shandong province isChina’s largest tire producer, while Dongying is the largest one inShandong. In 2015, dongying’s rubber tire exports dropped 26.5% year on year to 2.63 billion U.S. dollars.

In Dongying, tire export stands at 47.1% of the city’s total export and its overall export plunged over 20% in 2015 due to sharp decline of tire export.

A senior figure inShandong’s tire market said RMB depreciation cannot easeChina’s weak tire export at all. He predictsChina’s tire export in 2016 will be worse than in 2015.

An industry insider holds that comparing to the decline of prices of natural rubber and tires, the depreciation of RMB was only in a small range. Over the past two years, prices of sedan and truck tires dropped over 10%, and those of natural rubber dropped even sharper, while RMB only depreciated by 2%-3%.

On the other hand, tire trades are usually settled in dollars, no wonder RMB depreciation has little influence on tire export.

Trade Barrier Has Greater Influence

Besides economic slowdown, trade barriers are the greatest challenge forChina’s tire producers, said a senior figure of the industry.

For export-dependent Chinese tire companies, influences generated from trade barriers, such as the imposing of special protectionist tariffs and the anti-dumping anti-subsidy probe of theU.S., are beyond measure.

On September 11, 2009,U.S.president Obama decided to impose special protectionist tariffs on tires fromChinafor three years. The decision resulted in sharp decline ofChina’s tire export to theU.S.. In 2011,China’s export of passenger car tires to theU.S.dropped to 968 million U.S. dollars from the prior 2.2 billion dollars.

Three years later,China’s tire export to theU.S.started to rebound. But there came another round of trade war.

In July 2015, U.S. International Trade Commission voted to approve the anti-dumping and anti-subsidy probe into passenger car and light truck tires fromChina; in January 2016, theU.S.launched anti-dumping and anti-subsidy probe into truck tires fromChina.

Large number of Chinese tire producers have to give up theU.S.market.

Analytical report says that the change of RMB depreciation’s influence over tire export is far less than overseas trade barriers’.

Unfortunately, the severe situation has exacerbated.

The anti-dumping and anti-subsidy probe into tires fromChinahas been followed by more countries and regions. Zhang Hongmin, councilor of Shandong Rubber Industry Association, said the European Union may launch anti-dumping and anti-subsidy probe into tires fromChinain 2016.

Moreover,India,Brazil,Egypt,Argentina, and Euroasia Economic Commission have all been participating in the anti-dumping team against tires fromChina.

So what should the Chinese tire companies do?

The senior figure says neither currency exchange rate nor anti-dumping and anti-subsidy probe is crucial problem ofChina’s tire industry. Fundamentally, increasing added value, developing advanced products, and attaching significant to brand establishment are necessary paths of the development ofChina’s tire companies.