International Baccalaureate
Extended Essay
Title- To What Extent Did the Yuan/Yen Exchange Rate Impact the Price and Sales
Of Nissan Cars in China
Source: (Left) Group 1 Nissan. (Right) lycheetravel.com
IB Extended Essay Topic: Economics
School – Yokohama International School
School Code: 000339
May 2013
Candidate Name: Yihan Li
Candidate Number: 000339-014
Word Count: 3927
Abstract This essay explores the topic of exchange rate. It investigates the question “to
what extent did the Yuan/Yen exchange rate impact the price and sales of Nissan cars
in China”.
Firstly, it defines terms including exchange rate and appreciation, and
identifies the effects of appreciation on export goods. Then it researches the change in
Yen/Yuan exchange rate from January 2008 to July 2012, and derives the expected
effects of exchange rate on the prices and sales of Nissan cars in China in last four
years. Subsequently, the essay researches the actual changes on Nissan cars, and
compares these with expected results.
Initially, the essay reached the hypothesis—based on economics theories—
that price should have increased, while sales decreased because research showed that
exchange rate appreciated by 22% in 2008-2012. However, research showed there
were little increases in the prices while large increases in the sales, two results that
contradict the predictions. Consequently, the essay attempts to identify and explain
the reasons that caused the differences, and evaluates their degree of impacts on
Nissan cars. It also carries out a survey to examine how Chinese consumers perceived
Nissan cars in two Chinese cities.
The overall impact of exchange rate on the Nissan market in China was small,
as the actual changes differed from the expected ones. However, this was mainly
because Nissan China sharply expanded its production level, and became less reliant
of imported Nissan cars. This minimized the effects because the prices of Chinese-
made Nissan cars are not subjected to exchange rate. Furthermore, large increase in
sales was mostly due to increase in people’s personal income. Yet the survey also
found that Chinese consumers are highly price-sensitive; therefore, had Nissan
refused to relocated the production, its sales would have decreased dramatically.
(292 words)
Yihan li 000339-014 2
Table of Contents
1. Introduction…………………………………………………………………………4
2. Effect of change in exchange rate on the demand of import goods………………...5
2.1 Foreign and domestic prices……………………………………………….5
2.2 Effects of appreciation on an import good………………………………...5
2.3 Effects of depreciation on an import good………………..………….........7
3. Yuan/Yen exchange rate from January 2008 to July 2012…………………………8
4. Expected changes in Nissan car market……………………………………….........9
5. Actual prices and sales of Nissan cars in China…………………………………...10
5.1 Annual sales of Nissan cars in China in 2008-2011……………………...10
5.2 Price changes of five models of Nissan cars……………………………..10
6. Actual changes in Nissan car markets……………………………………………..11
7. Consumer Survey………………………………………………………………….12
7.1 Survey purpose, and questions…………………………………………...12
7.2 Results and analysis……………………………………………………...13
8. The effect of exchange rate on the pricing and sale of Nissan cars ………………16
8.1 The positive effect of appreciation on some cost…………………….......17
8.2 Coexistence of favorable and unfavorable market environment…………18
8.3 Foreign direct investment substitute export………………………….......20
8.4 Evaluation of each factor…………………………………………………21
9. Conclusion…………………………………………………………………………22
10. References and Bibliography………………………………………………….....24
11. Appendices…………………………………………………………………….....26
11.1 Appendix 1……………………………………………………………...26
11.2 Appendix 2……………………………………………………………...27
11.3 Appendix 3……………………………………………………………...28
11.4 Appendix 4……………………………………………………………...29
Yihan li 000339-014 3
1. Introduction Nissan is one of the biggest car manufacturers in the world, which sold more
than four million cars in 2010 (Nissan). In recent years, the company has been
concentrating on exploring Chinese market, the world’s largest car market, driving its
sales by opening new factories and dealerships in China. This gave Nissan a big
boost, as it sold close to 800,000 cars in China in 2011, becoming China’s fourth
largest car manufacturer in terms of sales (Zhang).
Nissan cars sold in China mostly fall into two categories: those manufactured
in Japan and those in China. If Nissan chooses to sell Japanese-made cars in China, it
must convert their prices from Japanese Yen to Chinese Yuan using exchange rate,
which calculates the price of one “currency in terms of the currencies of other
nations” (Samuelson and Nordhaus 376). This is because a Japanese-made Nissan car
is priced in Yen, however, Chinese consumers use Yuan to buy cars. Note that for the
purpose of this essay, costs incurred during transportation are ignored.
Since Yuan and Yen are two currencies that have floating exchange rates, the
Yuan/Yen exchange rate—the value of one Yen in terms of Yuan—fluctuates
constantly, as the prices of currencies change.1 Since Nissan uses this exchange rate to
convert the prices of its cars from Yen to Yuan, this constant fluctuation will also
affect the prices of cars in China.
The topic was chosen for two reasons. One is that people are living closely
related to the global economy. In 2011, the dollar value of international merchandize
trade reached $18.2 trillion (World Trade Organization). In a world with increasingly
frequent international trade, consumers are exposed to more choices, as they can now
purchase either domestic goods or imports. However, the prices of these imports are
vulnerable to the fluctuation in the exchange rate. Since price is an important
determinant when a consumer makes a purchase, this constant change in price will
affect the demand for import goods. Another reason is that China is undergoing car
fervor. The number of middle-class consumers who can afford cars burgeoned in
China in recent years. Consequently, these consumers are crazy about having their
1 If a currency has floating exchange rate, its prices is “determined by the free market interaction of supply and demand” (Maley and Welker 455)
Yihan li 000339-014 4
own cars and considering whether to buy domestic or foreign car. It is both interesting
and important to see how exchange rate will affect these consumers’ choices of cars.
Based upon the two reasons above, this topic is highly worthy of studying.
In addition, I chose Nissan for this essay because 1) as a Chinese living in
Japan, I am familiar with Japanese companies 2) Nissan—as China’s fourth largest
car manufacturer in terms of sales—is very popular in China, and 3) Nissan’s
headquarter is in Yokohama, my current residence.
Based on these reasons, the question: “to what extent did the Yen to Yuan
exchange rate impact the price and sales of Nissan cars in China?” was explored.
2. Effect of change in exchange rate on the demand of import goods
2.1 Foreign and domestic prices
According to introduction, exchange rate changes the prices of import goods.
Assume a Nissan car costs 2 million Yen (Krugman, Obstfled and Melitz, 351-352).
Based on International Economics, the price of the car in Yuan is found using
Formula 2.1:
Price of car in Yuan = Price in Yen × Yuan/Yen exchange rate (2.1)
At an exchange rate of 0.07Yuan/Yen, the Yuan price of the car equals: 2
million Yen × 0.07 Yuan/Yen, which is 140,000 Yuan. If the exchange rate changes
to 0.09 Yuan/Yen, assuming the price of car in Yen remains same, then price of car in
Yuan increases to 2 million Yen × 0.09 Yuan/Yen, or 180,000 Yuan. Similarly, if the
exchange rate changes to 0.05 Yuan/Yen, then the price in Yuan decreases to 2
million Yen × 0.05 Yuan/Yen, or 100,000 Yuan. This shows that without changing
the price of car in Yen, the price in Yuan can change due to the change in Yuan/Yen
exchange rate.
2.2 Effects of appreciation on an import good
Appreciation is the rise in the price of currency A in terms of B, such as when
the Yuan/Yen exchange rate changes from 0.07 to 0.09 Yuan/Yen (Krugman,
Yihan li 000339-014 5
Obstfled and Melitz, 352). The effect of appreciation on the consumption of import
good is shown below.
Figure 2.2: Effects of appreciation on an import good 2
In Figure 2.2, Supply 1 and Demand represent the supply and demand of an
import good before appreciation. In this case, the market will settle at equilibrium
point A, where supply equals demand. Consequently, Q1 units are exchanged at P1.
As explained in 2.1, appreciation increases the price of this good for all values,
shifting supply leftwards from S1 to S2. Note that S1 and S2 have different gradients
because the cost increase is a percentage rather than a fixed amount. The appreciation,
however, does not create a shift in demand.
The immediate consequence of appreciation is excess demand, where demand
exceeds supply. Consequently, price starts to increase, causing demand to decrease
because some consumers become unable to buy the good. When price is increased to
P2, Demand equals S2, creating a new equilibrium. Consequently, Q2 units of cars
are exchanged at P2.
2 Figure produced by the author
Yihan li 000339-014 6
Thus, appreciation makes exporters lose price competitiveness because they
find it more expensive to sell in foreign markets and face market share loss.
2.3 Effects of depreciation on an import good
The effect of depreciation is the opposite of appreciation. In Figure 2.3, prior
to depreciation, Qa units are exchanged at Pa, where S1 equals demand. Since
depreciation reduces the price of the import good for all values, supply shifts from S1
to S2. This creates a new equilibrium at Y; consequently, Qb units of cars are
exchanged at Pb. Thus, depreciation makes exporters gain price competitiveness
because they find it cheaper to sell in foreign markets and face market share increase.
Figure 2.3: The effects of depreciation on an import good 3
3. Yuan/Yen exchange rate from January 2008 to July 2012
3 Figure produced by the author
Yihan li 000339-014 7
Figure 3: Quarterly average Yuan/Yen exchange rate from Jan 2008 to July 2012
Source: X-Rate 4
The figure shows that, even though the exchange rate fluctuated over the last
four years, yen appreciated quite significantly. The average exchange rate increased
from 0.067 Yuan/Yen in January 2008 to about 0.082 Yuan/Yen in July 2012.
Percentage appreciation can be calculated using the formula:
appreciation (%)= ∆ exchangerateexchange rate∈2008
×100 (3)
Formula 3 shows that there was an appreciation of (0.82−0.67 )
0.67×100, or
about 22.4% between January 2008 and July 2012.
4. Expected changes in Nissan car market
4 This table is created based on data of Monthly Average Yuan/Yen Exchange Rate between 2008 and 2012 from X-Rate.
Yihan li 000339-014 8
According to 3, the Yuan/Yen exchange rate has appreciated 22.4% in the last
four and half years. Consequently, the expected effects of appreciation on the Nissan
car market can be predicted using Figure 2.2.
Figure 4 illustrates the supply and demand of Nissan cars between 2008 and
2012. Based on the steady appreciation of the exchange rate shown in Figure 3, and
the concepts explained in 2.2, supply curve is expected to shift inward year by year,
while demand curve remains constant. Consequently the prices of Nissan cars are
expected to increase, while the sales decrease.
Figure 4: Expected effect of appreciation on Nissan car market 5
In addition, formula 2.1 can be used to predict the change in price, or P5-P1.
Assume the car price in 2008 was α Yen, and Yuan/Yen exchange rate was β.
Consequently, the price in Yuan equals αβ. A 22% appreciation means that the
exchange rate has become 1.22β Yuan/Yen in 2012. This means that if price in Yen
remains unchanged, the price in Yuan should have become 1.22 αβ. Therefore, the car
price is also expected to increase by 22%.
5. Actual prices and sales of Nissan cars in China
5.1 Annual sales of Nissan cars in China 2008-2011 5 Figure produced by the author.
Yihan li 000339-014 9
Table 5.1: Annual sales of Nissan cars 2008-2011 6
Year Sales
2008 350,621
2009 459,300
2010 661,000
2011 768,541
Table 5.1 shows that the sales of Nissan cars in China have dramatically
increased in the last four years despite the appreciation of Yuan/Yen exchange rate. In
fact, Nissan doubled its annual sales from 2008 to 2011. This result contradicts the
results predicted in 4, in which appreciation is expected to reduce the sales of Nissan
cars.
5.2 Price changes of five models of Nissan cars
Table 5.2 shows the prices of five models of Nissan cars in 2008-2012. It is
constructed based on several sources. These models are chosen because they contain
sedan, family car and SUV, and several of them are Nissan’s best selling cars in
China.
Table 5.2: Prices of several models of Nissan cars in 2008-2012 (10000Yuan) 7
6 It is constructed based on information from data in Appendix 1. The data is from Zhang, China Association of Automobile Manufacturers, General Report, and Electronic Publishing House. 7 This table is constructed based on data from PC Auto China and Xcars. The past data were found using Wayback machine.
Yihan li 000339-014 10
2008 2009 2010 2011 2012 %Δ Price
X-Trail 20.78-25.88 20.78-25.88 20.78-26.98 20.78-26.98 20.78-26.98 2.4
Tiida 10.68-14.98 10.68-14.98 10.68-14.98 10.68-16.78 10.68-14.98 0.0
Livina 7.98-10.38 7.98-11.28 8.58-11.28 8.58-12.98 8.58-12.98 17.5
Qushqua
i
16.78-21.98 16.78-21.98 16.78-21.98 16.78-21.98 13.98-21.98 -7.2
Teana 20.68-34.98 19.08-33.28 19.08-36.58 19.08-37.08 19.08-37.18 1.1
The table illustrates that there were relatively little price increases in the five
models, despite the 20% appreciation in the Yuan/Yen exchange rate. The percentage
change in price is calculated using:
change∈price(%)= ∆ median pricemedian price∈2008
×100 (5.2)
This means that all five models had price increases that were much smaller
than the exchange rates. This again contradicts the expected change from 4, which
predicts that the price should have increased by about 22%.
6. Actual changes in Nissan car market
Data from 5.1 and 5.2 illustrate that there were large increases in the sales of
Nissan cars, while little increase in the prices of the cars, two results that contradict
the predications from 4. Based on these results, Figure 6 is drawn.
Figure 6: Expected changes against actual changes in Nissan car market 8
8 Figure produced by the author
Yihan li 000339-014 11
In Figure 6, a large increase in the sales means that there must have been a
large rightward shift in demand curve. Meanwhile, a slight increase in the price of
cars means that there was either a little leftward shift in supply or potentially a
rightward shift in supply. Figure 6 also compares the expected changes with actual
ones.
7. Consumer Survey
Figure 6 shows the difference between expected and actual changes. To
understand how Chinese consumers perceived Nissan cars, and whether their
perceptions contributed to the difference, a survey was taken.
7.1 Survey purpose, and questions
This survey serves the purpose of understanding the primary factor that
affected consumers in their car purchase and determining how much consumers are
sensitive to change in price. It was asked to sixty car owners in Beijing, my
hometown, and Shenyang, my mother’s hometown.
The survey has five questions. Q1 asked consumers the maker of their cars;
Q2 asked Nissan owners the primary factor that influenced their decision; Q3, the
percentage increase in price Nissan owners want to bear for the cars; Q4, the same
Yihan li 000339-014 12
question as Q2 to non-Nissan owners; and Q5, the percentage decrease in price non-
Nissan owners want to switch to Nissan. 9
7.2 Survey results and analysis 10
-Question 1-
Nissan Others05
1015202530354045
19
41
Nu
mb
er o
f peo
ple
Nissan was the second popular choice. The most popular was Volkswagen
with 22 people. Other choices included GM, Benz, Honda, BMW, and two Chinese
carmakers: Chery and Jili.
-Question 2-
Price Quality Others0123456789 8
65
Nu
mb
er o
f peo
ple
In this graph, other answers included range of choice, design, and good after-
service.
9 See Appendix 2 for complete survey questions 10 All figures in this section are produced by the author
Yihan li 000339-014 13
The result shows that price, with eight people, was the most important factor.
For example, a Mr. Liu said: “Chinese car market is very competitive. Nissan cars are
not exceptionally amazing, and there are many substitutes. If Nissan was more
expensive, I would have bought an Audi or Toyota.”
Nevertheless, some consumers were willing to sacrifice price for other factors.
For example, a Mr. Li, who answered quality, said: “Nissan cars are not cheap. If I
wanted cheap cars, I would have bought Chery or Jili instead…Nissan cars have good
quality. They are easy to drive and never break; these qualities are worth more
money.”
Generally speaking, the primary factor of purchase differed on individual
basis, and was mainly split into price and quality. However, because price was the
dominant reason and because those consumers who chose other factors also
acknowledged the importance of price, we can conclude that price definitely influence
the decision of consumers, and that a price increase will greatly reduce the demand.
-Question 3-
5 10 20 300
5
10
15
20 19
16
11
7
% Increase
Nu
mb
er o
f peo
ple
All Nissan owners wanted to endure 5% increase, though this decreased with
bigger price increases. The maximum price increase that a consumer was willing to
endure was 50%.
A calculation based on the results show that Nissan cars have a PED of 2.52,
which suggested that the cars are fairly elastic and which supported the result of
Yihan li 000339-014 14
question 1. 11 In fact, had Nissan’s price increased by 22.4%, its demand would have
decreased by 22.4% × 2.52, or 56.5%. Consequently, we can conclude that an
increase in the price of Nissan cars would sharply reduce the quantity demanded.
-Question 4-
Price Quality Status Others02468
10121416 14
10
7
10
Nu
mb
er o
f peo
ple
In this graph, other choices included design, and following others’ choices.
Here price, with fourteen people, was also the most important factor. A Mrs.
Yang said: “I bought a Jili because I couldn't afford a Nissan.” Her answer, supported
by several other owners, implied that if Nissan were cheaper, its demand would have
been bigger.
Although quality was also an important factor, different from the results in
question two, many people answered status. For example, a Mr. Sun said: “ I bought a
BMW because of its high status. Unfortunately Nissan doesn't have that.” Because
BMW and other luxury cars have high status, their PEDs are small; consequently,
their XEDs would also be small, implying that Nissan’s price decrease cannot attract
their consumers to switch. 12
Price would still affect the sales of Nissan cars. However, because many non-
Nissan consumers values status, the effect of price on them would be smaller than on
Nissan owners.
11 See Appendix 3 for the calculation 12 XED, or cross elasticity of demand, measures “the responsiveness of consumers of one good to a change in the price of a related good. Substitute goods have positive XED while complementary goods have negative XED” (Maley and Welker, 83)..
Yihan li 000339-014 15
-Question 5-
5 10 20 300
5
10
15
20
25
30
3
10
18
25
% Decrease
Nu
mb
er o
f peo
ple
Calculations based on the results shows that XED of Nissan cars equaled
2.08.13 This shows that had Nissan’s price increased by 22.4%, its competitors
demand would have increased by 22.4% × 2.08, or 46.6%. Hence we can conclude
that price increase will have devastating impacts on Nissan, as close to half the
consumers will switch to cars made by these competitors
8. Reasons to the difference between expected and actual changes
Figure 6 illustrates the difference between expected and actual changes.
Facing the increasing appreciation of the exchange rate, the prices of Nissan cars in
China remain almost unchanged, while sales increased dramatically. How could
Nissan bear most costs of currency appreciation, instead of shifting some costs onto
Chinese consumers? And how could it dramatically increase sales in Chinese market
with appreciation?
Clearly, exchange rate was not the only factor that affected Nissan market in
China. Therefore, two questions should be asked 1) to what degree the exchange rate
affect the market of Nissan cars in China? 2) What are other factors that influenced
the market?
8.1 The positive effect of appreciation on some cost
Car industry uses large amount of raw materials to produce cars. Since Nissan
heavily rely on imported raw materials and price of cars is largely determined by their
production costs, the effects of appreciation can actually be beneficial.
13 See Appendix 4 for calculation
Yihan li 000339-014 16
Yen has appreciated against major currencies: Dollar, Pound and Euro in the
last four years (X-rate). Since the prices of most raw materials are measured using
these three currencies, the appreciation of Yen against these implies that raw materials
have become relatively cheaper for Nissan factories in Japan; thus, the production
costs of these factories should have actually decreased. Unfortunately, there were no
recent data available regarding Nissan’s production costs.
Figure 8.1: Actual changes on Nissan market with lower production costs 14
As shown in Figure 8.1, by taking lower production costs into consideration,
we can see that the price becomes cheaper and sales expands, Q3>Q2 and P3<P2.
Consequently, Nissan cars exported to China were able to afford smaller price
increase.
8.2 Coexistence of favorable and unfavorable market environment
Car market is never completely competitive, because car producers are price
setters. Because Nissan has certain monopolistic power, it needs to consider the effect
of price change on its sales, since demand impacts Nissan’s ability to increase price.
14 Figure produced by the author
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According to Microeconomics, different from firms in perfect competition, a
producer of monopoly or monopolistic competition can decide price, which is usually
higher than marginal cost (MC). 15 Economists uses Lerner’s Degree of Monopoly
Power: L= P – MCP
= −1PED to measure how much the price is higher than MC. 16 A
firm’ s Lerner index depends on its own PED, which means that firm needs consider
the effect of the change of the price on the sales, and the reaction of its competitors
(Pindyck and Rubinfeld, 269). In Chinese market, Nissan’s pricing must follow the
market law, namely Nissan has to trade off between price and sales. What market
situation does Nissan face in China?
On one hand, Nissan cars face fierce competition due to the number of
competitors in China. Consequently, even if Nissan increases its price slightly, it
would lose its price competitiveness and lose market share; thus, Nissan is a maker in
monopolistic competition. Since 2008, while Pound, Dollar and Euro have all
depreciated against Yuan, Yen has appreciated (X-rate). This puts Nissan in a
disadvantageous position compared with other producers, as it faced the pressure of
price increase brought by appreciation. However, prices increase would sharply
reduce Nissan’s sales because—shown by PED of 2.52—Chinese consumers are very
price sensitive. Although we can only assume this for 2012, as the data is not
application for others years, there are strong possibilities that the situation was also
true for 2008, as the level of competition underwent little changes since 2008.
Consequently, Nissan has little ability to change its prices.
Figure 8.2: A market with high PED 17
15 Perfect competition is a market where firms produce same goods at same costs, and where no barriers of entry exist. 16 The index is from 0 to 1 and a firm with an index of 1 has maximum monopoly power (Pindyck and Rubinfeld, 269). PED is the percentage “change in quantity demanded divided by the percentage change in price” (Samuelson and Nordhaus, 65). 17 Figure produced by the author
Yihan li 000339-014 18
Figure 8.2 is a market of monopolistic competition with high PED, one similar
to Nissan.18 Before appreciation, the cost curves of the company are MC1 and AC1.
Based on laws of economics, it produces at the quantity where MC1=MR because it
wants to maximize profit. Using D=AR, Q1 units are sold at price of P1. After
appreciation, costs curve increase to MC2 and AC2. Consequently, Q2 units are sold
for P2. This shows that a slight increase in price from P1 to P2 sharply reduce demand
from Q1 to Q2. Therefore, Nissan may have sacrificed its profit margin and kept price
increase small to maintain its market share, hoping Yuan/Yen exchange rate will
depreciate in the future.
On the other hand, income increase expands the demand of cars. From 2008 to
2012, China’s urban income increased from 15000 to 24000 Yuan, while rural from
5000 to 8000 Yuan. 19 Since car is a normal good, its demand would increase as
income increases. Measured in PPP, $3,400-$10,000 or ¥21,700-¥64,000 is a critical
range of income for car ownership, between which the income elasticity of cars is 1.9
(Ail and Dadush, 3). 20 There are more than 500 million middle classes in China, with
their income above $3400 and income growth 8-15%. These people’s car
consumption should have increased by 15-29% — increase equals incomes elasticity
of cars × income increase; this gives 1.9×8%=15.2%∧1.9 ×15 %=28.5%. This
explains the drastic increase in sales shown in Table 5, which ensured Nissan’s profit
18 In Figure 8.2, AR and AC represent average revenue and average cost. 19 Data are from National Bureau of Statistics and Chongqing Bureau Statistics. 20 Income elasticity of cars is “the ratio of average car ownership growth and average income per capita growth”, (Ail and Dadush, 3).
Yihan li 000339-014 19
even facing appreciation pressure. Therefore, Nissan were willing to keep the price
increase and profit margin small, as it can maintain high total revenue through bigger
sales.
8.3 Foreign direct investment (FDI) substitutes export
Aforementioned positive effect of exchange rate on cost, change in consumer
income and competition in China market cannot fully explain the whole story. Yen’s
historical appreciation hit Japanese export-oriented enterprises. The survival of Nissan
should greatly be ascribed to its increase in FDI.
Two independent studies by Cushman and by Froot and Stein emphasize the
important influence of the fluctuation in exchange rates on FDI. “They conclude that
depreciation of the recipient country’s currency stimulate the inflows of FDI, while
the reduction of local production costs measured in foreign currency will raise the
profits of foreign investors accordingly. High returns naturally affect companies’
relocation decisions, attracting them to increase production capacity abroad” (Xing
and Wan). The reduction of Nissan output in Japan and shift of production line to
China may be well interpreted with above theoretical results.
In early 2000s, many Chinese consumers doubted about buying Chinese-made
Nissan cars. However, after a short period, people became familiar with these cars.
Such change should be ascribed to Nissan’s increase in foreign investment in China.
In recent years, in order to reduce the damage effect of Yen’s appreciation on export,
Nissan has been increasing investment in China, expanding infrastructure, introducing
more new car models to China. And these changes coincide with the phenomenon
explained by the studies.
Figure 8.3: Production and retail sales in China
Yihan li 000339-014 20
Source: Production and Retail Sales, Nissan
Figure 8.3 illustrates that most Nissan cars sold in China are produced in
China since 2008, the year Yen started to appreciate. Currently, Nissan has three
factories in main land China that produced 1,075,526 cars in China in 2010, a figure
close to 1,078,621 cars, Nissan’s total sales.21 Although, parts of these were exported
to other markets, most of them were sold in China. Consequently, China’s reliance on
imported Nissan cars is low; in fact, Nissan Japan only exported 51,980 passenger
cars to entire Asian market in 2010 (Nissan). Because of this the impact of
appreciation in the exchange rate on the prices of Nissan cars was small.
8.4 Evaluation of the factors
Although the aforementioned three factors may explain the reasons to the
differences between the expected and actual changes, their level of impact are
different; thus their significance should be accessed. According to Nissan, only
52,000 cars were exported to the entire Asian market. This shows that, in reality,
lower production costs due to cheaper raw materials posed little effects on Japanese-
made Nissan cars in China because the number was small to cause large impacts.
Competition is an important factor that curtailed the price increase. Because
Nissan did not want to lose its market share in China, it had to sacrifice price for
sales. In addition, the increase in income greatly expanded Nissan’s demand because
Chinese consumers gained more financial abilities to buy cars. This in turn reduced
Nissan’s pressure for price increase because even though profit margin is smaller,
Nissan’s total profit is large due to bigger sales. Since annual sales increase due to
21 Both numbers include non-passenger cars that are excluded figures in Table 5.2
Yihan li 000339-014 21
income growth is 15-30%, the effect of income growth on sales is large. Therefore,
the increase in income explains not only the large increase in the sales and but also the
little increase in price.
Furthermore, Figure 8.3 also indicates that most Nissan cars sold in China are
Chinese-made. Because these cars do not need price conversions from one currency to
another, their prices are independent of the fluctuation in exchange rate. Thus the
increase in the numbers of Chinese-made cars sold—the increase in Nissan’s FDI in
China—was also an important factor that minimized the price change of Nissan cars.
9. Conclusion
This essay attempted to address the question “to what extent will the Yen to
Yuan exchange rate impact the price and sales of Nissan cars in China?” Based on
2.1, knowing the exchange rate of two currencies should allow one to determine the
price of import goods measured in local currency. Consequently, if factors of
strengthening Yen were fully reflected in the price of Nissan cars in China, the rising
price must have sharply reduced Nissan’ demand, as illustrated in Figure 4. However,
the appreciation of Yen did not wipe out Nissan cars from China. Conversely, the
prices only increased slightly while the sales drastically increased in 2008-2012.
From the performance of Nissan cars in China during last four years with
appreciating Yen, the student found the complexity of the effects of exchange rate on
markets, and the importance of other factors—such as the relocation of factories and
increase in consumer income. Under the constant appreciation of Yuan/Yen exchange
rate, Nissan gradually relocated its factories to avoid the effects of appreciation. On
surface, the fluctuation of exchange rate did not seem to affect the price and sales of
Nissan cars in China. In reality, the appreciation greatly affected Nissan, as it changed
Nissan’s production strategies; Nissan now produced most of cars in China, rather
than in Japan to avoid the effects of appreciation. Meanwhile, this essay also found
that increase in demand was largely due to the increase in consumer income. This in
turn allowed Nissan to keep prices low to maintain the level of demand, as Nissan
could trade low profit margin for large sales to sustain total revenue and profit. In the
end, this essay concludes that discrepancy between expected and actual results was
due to Nissan’s relocation of factories and increase in consumer income. Although
Yihan li 000339-014 22
exchange rate did not affect the prices and sales directly, it affected Nissan by cause it
to change its production strategies.
In addition, the survey carried out indicates that Chinese consumers were very
price sensitive and viewed price as the prime determinant of purchase. These were
reflected in Nissan’s PED of 2.52, and XED of 2.08, and the responses to question
two and four. Therefore, the essay also concludes that had most Nissan cars been
continually produced in Japan, in which case the prices of cars would have increased
by 22% following the yen’s appreciation, the decrease in sales and consequent
impacts would have been significant on Nissan.
Lastly, if I could research further, I would like to answer the following
question: “to what extent did the increase in consumer income impact the price and
sales of Nissan cars in China?” that has a reason out of my study because income
played important role in increasing the sales and stabilizing the price. The results also
made me wonder “how much Nissan would have suffered, had Nissan kept its
productions in Japan and had exchange rate been the only factor?” because I was
unable to see the sole impacts of exchange rate on Nissan.
10. References and Bibliography 1. China Association of Automobile Manufacturers. "2010 Domestic Car Sales."
Sohu Cars. Sohu Cars Laboratory, 10 Jan. 2011. Web. 15 Mar. 2012.
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<http://auto.sohu.com/s2011/2010pandian/index.shtml>.2. "China Currency - Renminbi." China Currency, Chinese Yuan, Renminbi.
Lychee Travel, n.d. Web. 17 Oct. 2012. <http://www.lycheetravel.com/china-travel-guide/china-money.html>.
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4. "Company Profile." Nissan. Nissan, n.d. Web. 11 July 2012. <http://www.nissan-global.com/JP/COMPANY/PROFILE/>.
5. Dadush, Uri, and Shimelse, Ail. A New Measure of the Global Middle Class. VOX. Carnegie Endowment for International Peace, 2 June 2012. Web. 22 July 2012. <http://www.voxeu.org/article/new-measure-global-middle-class>.
6. "Dofeng Nissan." PC Auto.com.cn. PC Auto China, 2 Apr. 2008. Web. 17 Mar. 2012. <http://web.archive.org/web/20080402043423/http://price.pcauto.com.cn/brand.jsp?bid=15>.
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10. "Dofeng Nissan." Xcar.com.cn. Xcar China, 24 Apr. 2011. Web. 17 Mar. 2012.<http://web.archive.org/web/20110424032822/http://newcar.xcar.com.cn/price/b13/>.
11. Electronic Publishing House, Feb. 2009. Web. 15 Mar. 2012. <http://www.docin.com/p-50353533.html>.
12. "Historic Lookup." X-Rates. X-Rates, 26 August 2012. Web. 26 August 2012. <http://www.xrates.com/historical/?from=JPY&amount=1.00&date=2008-08-26>
13. "Income of Urban and Rural Residents in 2011." National Bureau of Statistics of China. National Bureau of Statistics of China, 30 Jan. 2012. Web. 21 July 2012. <http://www.stats.gov.cn/english/pressrelease/t20120130_402787464.htm>.
14. Krugman, Paul R., Obstfeld, Maurice, and Melitz, Marc J. International Economics: Theory & Policy. 9th ed. Harlow: Pearson Education, 2012. Print.
15. Liu, Jian. "Consumer Survey." Personal interview. 4 Apr. 2012.16. Li, Shangshan. "Consumer Survey." Personal interview. 4 Apr. 2012.17. Maley, Sean, and Welker, Jason. Economics. Harlow: Pearson Education,
2011. Print 18. "Nissan Logo." Group 1 Nissan. Group 1 Nissan, n.d. Web. 17 Oct. 2012.
<http://blog.group1-nissan.co.za/index.php/new-nissan-launches/nissan-concepts-turn-heads-at-geneva-motor-show/attachment/nissan_logo/>.
Yihan li 000339-014 24
19. Production and Retail Sales. Rep. Nissan, Nov. 2011. Web. 23 July 2012. <http://www.nissan-global.com/EN/DOCUMENT/PDF/PROFILE/2011/Profile11E_P27_30.pdf>.
20. Pindyck, Robert S., and Rubinfeld, Daniel L. Microeconomics. Trans. Jun, Zhang. 3rd ed. Beijing: China People UP, 1998. Print.
21. "Trade Growth to Slow in 2012 after Strong Deceleration in 2011." WTO. World Trade Organization, 12 Apr. 2012. Web. 21 July 2012. <http://www.wto.org/english/news_e/pres12_e/pr658_e.htm>.
22. Samuelson, Paul A., and Nordhaus, William D. Economics. 19th ed. New York: McGraw-Hill Education, 2010. Print.
23. Sun, Zhicheng. "Consumer Survey." E-mail interview. 6 July 2012.24. Xing, Yuqing, and Wan, Guanghua. Exchange Rate and Competition for FDI.
Tech. Kobe University, 2004. Web. 2 Aug. 2012. <http://www.rieb.kobe-u.ac.jp/academic/ra/seminar/2004/seminar-details/xing.pdf>.
25. Yang, Yucun. "Consumer Survey." Personal interview. 4 Apr. 2012.26. Zhang. "Car Sales Ranking in China Jan-Dec 2011." 515 Ranking. N.p., 11
Jan. 2012. Web. 15 Mar. 2012.<http://www.515fa.com/che_721.html>.27. General Report. "Total Sales of Top 10 Car Manufacturers Exceed 2
Million Cars." Sohu Cars. Sohu Cars, 11 Jan. 2010. Web. 15 Mar. 2012. <http://auto.sohu.com/20100111/n269499509.shtml>.
28. 2008 China Car Companies Sales Ranking. Rep. China Academic Journal 29. "2008 Monthly Average Yuan/Yen Exchange Rate." X-Rates. X-Rates, n.d.
Web. 05 June 2012. <http://www.xrates.com/d/CNY/JPY/hist2008.html>.
30. "2008 Urban and Rural Disposable Income by Province." Cnblog. Chongqin City Bureau Statistics, 25 Sept. 2009. Web. 21 July 2012.<http://www.cnblogs.com/tekson/archive/2009/05/30/1492313.html>.
31. "2009 Monthly Average Yuan/Yen Exchange Rate." X-Rates. X-Rates, n.d. Web. 05 June 2012. <http://www.x-rates.com/d/CNY/JPY/hist2009.html>.
32. "2010 Monthly Average Yuan/Yen Exchange Rate." X-Rates. X-Rates, n.d. Web. 05 June 2012. <http://www.x-rates.com/d/CNY/JPY/hist2011.html>.
33. "2011 Monthly Average Yuan/Yen Exchange Rate." X-Rates. X-Rates, n.d. Web. 05 June 2012. <http://www.x-rates.com/d/CNY/JPY/hist2011.html>.
34. "2012 Monthly Average Yuan/Yen Exchange Rate." X-Rates. X-Rates, n.d. Web. 05 June 2012. <http://www.x-rates.com/d/CNY/JPY/hist2012.html>.
11. Appendices
11.1 Appendix 1
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Below are tables that show the car sales ranking in China between 2008 and 2012.
2011 car sales ranking in ChinaMaker Sales1. Shanghai GM 12003682. Shanghai VW 11500973. First VW 10001884. Dongfeng Nissan 7685415. Beijing Hyundai 7202066. First Toyota 6301467. Dongfeng Kia 4200058. BYD 4198349. Changan Ford Mazda 41888010. Jili 403900Source: 515fa.com
2010 car sales ranking in ChinaMaker Sales (10000)1. Shanghai GM 103.92. Shanghai VW 100.13. First VW 87.04. Beijing Hyundai 70.35. Chery 68.26. Donfeng Nissan 66.17. BYD Auto 52.08. First Toyota 51.09. JAC 45.010. Jili 41.511. Changan Ford Mazda 40.312. Guangzhou Honda 38.613. Dongfeng Honda 26.114. Tianjin First 25.015. Shanghai Auto 16.016. First Mazda 14.717. Changan Mazda 9.3Source: auto.sohu.com
2009 car sales ranking in ChinaMaker Sales (10000)1. Shanghai VW 70.81
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2. First VW 66.923. Shanghai GM 66.824. Beijing Hyundai 52.105. Dongfeng Nissan 45.936. BYD 44.847. Chery 40.938. Guangzhou Honda 33.729. First Toyota 33.4710. Jili 32.91Source: auto.sohu.com
2008 Car Sales in ChinaMaker Sales1. First VW 498,8672. Shanghai VW 490,0873. Shanghai GM 468,6424. First Honda 365,6995. Chery 356,0926. Dongfeng Nissan 350,6217. Guangzhou Honda 305,9978. Beijing Hyundai 294,5179 Jili 230,42010. Changan Ford 202,797Source: weizhang.com
11.2 Appendix 21. Do you own a Nissan car? If not what do you own?
Yes No ( )
Answer Q2-3, if you have answered YES in Q12. Was price the main factor of your decision? If not what was it? And briefly explain your reason.
Yes No ( )
3. If the price of your car was 5%, 10%, 20% or 30% higher, did you still consider buying the car? Also briefly explain your reason.
5%-------Yes No10%------Yes No20%------Yes No30%------Yes NoOver 30 % ( )
Answer Q4-5, if you answered NO in Q14. Was price the main you never considered buying a Nissan car before? If not what was it? Also briefly explain your reason.
Yes No ( )
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5. If the price of Nissan car were 5%, 10%, 20% or 30% cheaper, would you have bought a Nissan car instead? Also briefly explain your reason.
5%-------Yes No10%------Yes No20%------Yes No30%------Yes NoOver 30% ( )
11.3 Appendix 3
Figure 11.3: Percentage increase in price against percentage decrease in quantity demanded
0 5 10 15 20 25 30 35
-70
-60
-50
-40
-30
-20
-10
0f(x) = − 2.51561106155218 x + 10.6155218554862R² = 0.994000299985001
% PriceΔ
% Q
DΔ
Figure 11.2 is drawn based on the data from Figure 8.3-3. Note that
%Δ QD = ∆ QD
Original QD× 100.
For example, when % increase in price was 10%,
%Δ QD equaled (16−19)
19×100, or - 15.8%.
Also, the line in the figure is a line of best fit, with an equation: %Δ QD = -2.5156 (% Δ Price) + 10.616. The differentiation of this equation, % ΔQD% Δ Price equals -2.5156. Because
% ΔQD% Δ Price equals PED, Nissan’ PED is -2.5156.
11.4 Appendix 4
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Figure 11.4: Percentage decrease in Nissan cars’ price against percentage decrease in quantity demanded of competitors’ cars
-35 -30 -25 -20 -15 -10 -5 0
-70
-60
-50
-40
-30
-20
-10
0
f(x) = 2.08350558081851 x − 0.289375775113811R² = 0.982061115922305
% Price of AΔ
%
QD
of B
Δ
Figure 11.3 is drawn based on the data from Figure 8.3-5. Note that
%Δ QD = ∆ QD of B
Original QDof B×100.
For example, when % decrease in price was 10%,
%Δ QD equaled −1041
×100 or -24.4%.
Also, the line in the figure is a line of best fit, with an equation: %Δ QD of B = -2.0835 (% Δ Price of A) -0.2894. The differentiation of this equation, % ΔQDof B% Δ Price of A equals -2.0835. Because
% ΔQDof B% Δ Price of A equals XED, Nissan’ XED is
-2.0835.
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