This has been all over the news today.  The yuan/USD ratio reached 6.8823 - a new low for the dollar.  I just went back to check - the ratio that we used to calculate travel expenses and contracts five years ago was 8.28.  This is clearly bad news for China’s U.S. focused outsourcing vendors.  They’re seeing lower rates driven by both increased competition and the weakening market in the U.S.  At the same time, their costs are increasing, especially in Beijing / Shanghai.  Finally, the currency that they’re getting paid in (U.S. $) is worth less in the currency that they’re using to pay staff & expenses (RMB). 

Here’re some excerpts from the coverage in Time:

“The yuan has gained about 20 percent against the U.S. dollar since Beijing revamped its foreign exchange trading system in July 2005, revaluing the currency by 2.1 percent to 8.11 yuan to one dollar.

On Wednesday, the Chinese yuan began trading at a 6.8823, continuing a steady advance against the dollar that has taken it to fresh highs in recent weeks.”

If you’re a U.S. client with locked-in dollar denominated rates, you ought to be having a conversation with your vendor.  I can promise you that the vendors will find a way to work this into their business.  You will be much better served by proactively being part of the process than by being a victim of the process.  Stay on top of this.

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