GEC NEWS WIREFrom the Great Wall of China
The planet experienced a seismic turbulence after China sent shockwaves through the global market by devaluing its currency to a two-decade low. Surely, no sector is untouched by this downfall,it is much ado about everything. And China being the ‘World Factory’ for electronic goods and ICT giants, the devaluation of yuan is certainly something that would have a deep impact on the world of ICT.
The Seismic background
The world’s second largest economy has surely given its counterparts a reality check. The surprise step by China’s central bank—which instigated the yuan to decline 1.9% against the US dollar on Tuesday—is reported to be a meek initiativeto bolster the country’s slowing economy and sagging exports. (The devaluation makes Chinese goods cheaper for overseas buyers and was welcomed by factory owners after exports last month slid 8.3% from a year earlier. according to NZ Herald)
The electronic paradise in turmoil
According to Wall Street Journal Report, ‘China’s devaluation of the yuan is likely to divide the fortunes of the country’s growing electronics brands, rewarding big exporters while hitting domestically focused brands’
We always say this humorously that there is a very thin line between ‘surprise’ and ‘shock’. The devaluationof the Renminbi comes as a serious shock rather than a surprise owing to the crucial phase in time when the government has been taking and promoting active initiatives and efforts to encourage Chinese manufacturers to upgrade their technology, often using imported technology. The government had also taken strides in boosting the imports whilst trying to maintain equilibrium in China’s economy and deduce its trade surplus.
Perhaps the Chinese economy is decelerating even faster than anyone realizes. Already, the IMF is forecasting 6.8 percent economic growth in China this year, the slowest rate since 1990
According to a report in International Business Times, in recent months they have reduced import tariffs on a range of goods, and pledged to ease cross-border e-commerce, partly to satisfy pent-up demand among Chinese consumers for better-quality goods. Li-Gang Liu, chief economist for greater China at ANZ Bank, was quoted talking to IBT that there are grounds for such concerns. “In general the devaluation will have a negative impact on Chinese imports. We may see less Chinese demand for luxury goods.”
Global ICT walks on the tight rope:
Gartner has already reported decline of worldwide IT spending as well as PC shipments. Worldwide IT spending is on pace to total $3.5 trillion in 2015, a 5.5 percent decline from 2014, according to the latest forecast by Gartner. In constant-currency terms, the market is projected to grow 2.5 percent. In Gartner’s previous forecast in April, it had forecast IT spending to decline 1.3 percent in U.S. dollars and grow 3.1 percent in constant currency. Worldwide PC shipments totalled 68.4 million units in the second quarter of 2015, a 9.5 percent decline from the second quarter of 2014, according to preliminary results by Gartner, Inc. This was the steepest PC shipment decline since the third quarter of 2013. PC shipments are projected to decline 4.4 percent in 2015.
Big time now, China has been trying to‘re-tag’ itself from being a known as a large factory producing cut-price consumer goods for the rest of the world. The mighty export-import canvas behind the weakening of the yuan will probably make this reality only stoop further. Tech giants may find themselves at the cross-roads with the export market wreaking havoc now as less valuable Chinese currency is not so good for exporters who want to sell manufactured goods.
Citing some examples; China is Apple’s most important market after U.S. Apple is also stated to be heavily relying on China for its future growth. Any goods or service that a foreign buyer will buy from China will be cheaper by 3% which will signal dark clouds for Apple manufacturers and dampens the profitability of Apple’s entire Chinese operation. So the challenge for Apple is to decide—to go with the current rate or increase the prices of all its iGadgets. According to another report Chinese manufacturers, on the other hand, such as Apple product assembler Foxconn and PC maker Lenovo Group will get a lift from cheaper production costs at home, while their sales are mostly made in dollars.
Apple may be one of the biggest losers from China’s surprise decision to devalue its currency, while the U.S. Company’s Chinese rivals and the main assembler of its iPhone are expected to be among the biggest winners.
Firms that make electrical and electronic goods in India import a bulk of their components from China, so they are going to be happy. (BBC report)
Not only Apple, but also many other US companies depend heavily on China. Chip maker Qualcomm, for example, earns about half of its revenues from China. So it will also see an impact from the yuan’s devaluation. (Market realist)
Other tech giant, Huawei Technologies, whose main business is sales of telecommunications equipment, and Lenovo already get most of their revenue outside China, while rising players such as smartphone maker Xiaomi are expanding overseas.
Future VS Predictions
China has been on the forefront of technology recently, with all the headlines being attributed to the amount of tech development that China is set to achieve by 2020.
According to a study released by Battelle Memorial Institute, Research and Development (R&D) spending in China this year is likely to reach $284 billion, up 22 percent from 2012. This compares to only 4 percent expansion expected in the United States for the same duration. China is expected to surpass Europe in R&D spending by 2018 and exceed the United States by 2022.China has been leading on the vanguard of processor chips as well. Supreme examples of Lenovo acquiring IBM and surpassing Hewlett Packard were witnesses of the great visions that China had for 2020.
With the devaluation of China’s Renminbi, a great number of tech giants from both the sides of the Great Wall of China are gearing up for the unpredictable (or most likely the predictable). As China is a huge consumer of commodities, the effect is sure to send ripples across the global economy. As for the ICT market, the impacts and the outcomes, the wait is worth. !
