RMB Appreciation Hurts China'S Export Shoe Enterprises

Export is one of the three driving forces of China's economic development. This year's export situation has undergone tremendous changes.

For most Chinese enterprises with a small profit margin, the appreciation of the renminbi is like "the last straw to break the camel's back".

China should maintain the "independent, controllable and progressive principle" of the RMB exchange rate, giving enterprises some time and space to adjust export strategies and product mix and pform export growth mode.

Pessimism permeates China's export enterprises.

The latest data show that since 2008, China's export surplus has declined for third consecutive months, and the complex factors at home and abroad have come together, which has cast a great shadow on China's foreign trade industry in 2008.

Internal and external factors challenge China's foreign trade

At the 103rd Canton Fair, which opened in April 15th, Chen Deming, Minister of Commerce, analyzed the four major factors that affect China's foreign trade: the US subprime mortgage crisis has had a negative impact on the developed countries' market and consumer confidence; the price of raw materials in the international market has increased and the RMB exchange rate has changed greatly; since last year, a series of macroeconomic control policies and measures have been implemented by relevant departments, such as the export tax rebate reduction.

"The combination of multiple factors has an impact on the export of enterprises."

In April 1st, CLSA issued the China Purchasing Managers Index (PMI) in March. The PMI index is designed to reflect the health status of the manufacturing industry. It is an internationally leading indicator system for macroeconomic monitoring.

PMI above 50 indicates that the manufacturing industry is expanding, otherwise it reflects the shrinkage of the manufacturing industry.

What is worrying is that the Chinese order export index, which has 30% weight in PMI, has fallen for two consecutive months, only 50.9, the lowest in 14 months.

This means that demand for export orders has continued to decline. Analysis shows that such export sluggishness is likely to take a turn for the presidents.

In April 30th, the Ministry of Commerce issued the "China's foreign trade form report" in the spring.

The report points out that China's foreign trade is facing a tight environment at home and abroad, and uncertainties are increasing.

China is faced with three major uncertainties.

The slowdown in world economic and trade growth is the biggest uncertainty facing China's export situation.

The impact of the US subprime mortgage crisis is deepening to the real economy, such as consumption and investment.

In 2007, the European Union, the United States and Japan were China's largest trading partners.

Among them, the United States accounts for 17.5% of China's direct exports.

From the perspective of world trade structure, if the US economy falls into recession, then the EU and Japan's economies will be affected to varying degrees.

At the same time, the primary products in the international market continue to rise. As a big manufacturing country and a big trading country, China has become the main undertaker of the rising raw materials. The profit margins of export enterprises have been squeezed, the profit level has declined, and the operating pressure has increased.

According to the data provided by the Ministry of Commerce, the import prices of crude oil, refined oil, iron ore, soya bean and edible vegetable oil increased by 66%, 60.6%, 80.6%, 77% and 69.9% in the first quarter, respectively. However, due to the low demand and fierce competition in the international market, the price of industrial manufactured goods far lagged behind that of primary products.

In addition, the acceleration of domestic RMB appreciation, the increase of raw material prices, the increase of labor and environmental costs, the increase of interest rates and the adjustment of foreign trade policies and other factors have brought about a superimposed effect on China's export growth since the beginning of this year.

If export growth falls too fast, even lower than the growth rate of GDP, it is likely to affect employment and taxes in some areas.

The negative multiplier effect caused by the contraction of external demand will restrain domestic demand.

Export enterprises survive

Export is one of the three driving forces of China's economic development. This year's export situation has undergone tremendous changes.

Among them, the textile industry has strong representativeness.

"In 2008, 1/3 textile enterprises were on the verge of collapse."

In the early January, the news was reprinted among the media, which attracted the attention of the government. The State Council's top instructions asked the national development and Reform Commission and the Ministry of Commerce to carry out the investigation.

Textile is one of the most representative export commodities in China, with a foreign trade surplus of $150 billion last year.

After the Spring Festival, the China Textile Industry Association made a thorough investigation of the 6 provinces' textile industry. The surveyed Jiangsu, Zhejiang, Shandong, Guangdong, Fujian and Hebei provinces accounted for 85% of the total industry, and concentrated on the most powerful textile enterprises and industrial clusters in China.

It is understood that 1/3 of the textile enterprises in 2007 accounted for 80% of the profits of the whole industry, and the profit margins of these enterprises were mostly 6% to 10%, while the average profit rate of the whole industry was only 3.9%, which was affected by all aspects. The long-term orders of textile enterprises had been very difficult to get. Even 1/3 enterprises that created profits were experiencing the most difficult days.

The rapid appreciation of the RMB is regarded by many export enterprises as the primary factor that leads to the textile industry into a dilemma.

In the first quarter of 2008, the appreciation of RMB against the US dollar reached 4.49%, which surpassed the full year of 2006 and the 1-7 month of 2007.

Basically, the export of textiles in China is based on settlement. The appreciation of the renminbi against the US dollar in the first quarter has made it difficult for the export enterprises in the industry.

In addition, the delivery date is usually 3-5 months. When the enterprise takes the price, it should take into account the exchange rate level after a few months. Most companies use the level of 6. 6 to 7.

The 103rd Canton Fair shows that existing customers are often unable to accept the US dollar quotations for raising prices, and orders have shifted to other countries such as Vietnam, and the profit margins of Chinese enterprises have basically disappeared.

"RMB appreciation has a certain impact on the excipient industry. Because of this, raw material prices have generally soared and profits have not increased correspondingly.

Now, with RMB appreciation of one percentage point, the profit of textile export has declined to varying degrees.

In April 12th, Wang Yu, vice president of the China Textiles Import and Export Chamber of Commerce, told reporters at the formal meeting of the China Open Economy Research Institute of University of International Business and Economics.

Unlike the textile industry, China's mechanical and electrical products are supported by the government to encourage export industries. Even so, the export of mechanical and electrical products has not been affected by the rapid appreciation of the RMB.

According to the data provided by the China Chamber of Commerce for import and export of mechanical and electrical products, the export growth of mechanical and electrical products in 2007 was 27%, but this year's growth has dropped sharply. It is predicted that the export of mechanical and electrical products will decrease by 5 percentage points in 2008.

Objective analysis, leading to export processing enterprises operating difficulties, in addition to the RMB appreciation factor, there are the following aspects:

First, prices of raw materials and upstream products have risen sharply.

Comprehensive calculation, because of the rising price of raw materials and upstream products, the production cost of domestic enterprises has increased by 20% - 30%, which has become the first factor to drive up the cost of enterprises.

Second, changes in domestic and foreign trade policies.

In recent years, due to the increasing international trade surplus, China has been forced to adjust its export policy.

The basic direction of adjustment is to restrict the export of labor-intensive and low processing industries, and create a great cost for enterprises.

Especially for textile shoes and hats, jewelry, leather, processing, feed and other traditional superior industries, and these enterprises are concentrated in the Pearl River Delta region.

Third, the central bank has tightened monetary policy.

The central bank strictly restricted the scale of loans, which further exacerbated the financial difficulties of export processing enterprises.

Fourth, the impact of the US subprime mortgage crisis.

The subprime mortgage crisis has devastated the US economy, and has also damaged US demand for Chinese goods.

Since the second half of 2007, orders for textile and garment enterprises in the Pearl River Delta region have been greatly reduced. In January 2008, China's exports to the United States dropped sharply to 22.7% over the same period last year.

Fifth, the increase of labor costs in export processing enterprises is an important factor.

Beginning in 2002, the widespread shortage of migrant workers, including the Pearl River Delta and the Yangtze River Delta, led to a price increase in demand less labor.

In 2004, the "labor shortage" concentrated in the Pearl River Delta, especially in industries such as electronics, toys, clothing, computers, manufacturing and other industries. The number of migrant workers in the Pearl River Delta region reached 2 million in 2006. The essence of "shortage of migrant workers" is "cheap labor shortage". In order to retain workers, enterprises have been increasing wages.

At present, because of the relative low income of workers, the internal imbalance has promoted the aggravation of external imbalances, forming a vicious circle.

Internal demand is insufficient, products rely heavily on external demand, foreign trade dependence is increasing, foreign trade surplus is expanding and foreign exchange reserves are increasing.

At the same time, in order to gain competitiveness in the international market, export products can lower prices, which can only further reduce labor costs and increase internal and external imbalances in the country.

This development mode will also be restricted by legal norms, reducing the level of labor welfare and protection, and reducing labor rights, not only contrary to the worldwide progress wave of people-oriented and corporate social responsibility, but also restricted by the labor contract law promulgated and implemented by China.

Export difficulties bring factory closures and unemployment increases

Under the pressure of reducing the surplus, RMB appreciation, downgrading tax rebates and levying taxes, some brands with higher added value and longer industrial chains will face stronger adjustment, but the vast majority of SMEs will be squeezed out.

There are about more than 3000 textile enterprises in Zibo, Shandong. At present, about 30% of export orders have been pferred to neighboring countries.

If this situation continues, more than 100 thousand people are expected to be unemployed.

More than 60 of the 600 textile enterprises in a town in Jiangyin, Jiangsu have been closed.

According to a recent survey by the American Chamber of Commerce in Shanghai, 17% of the corporate members intend to pfer their businesses in China to neighboring countries.

More importantly, if these textile enterprises are in a desperate situation, they will jeopardize the employment of 15 million people.

The labor intensive textile industry is an industry of the people's livelihood. There are about 20000000 workers in China's textile industry, 13 million of whom are migrant workers. If 2/3 of the enterprises fail, it will pose a great threat to social stability.

On the other hand, China and India, Vietnam and other countries are fiercely competitive in the international market, and are at a critical moment of competition. At present, many domestic enterprises, including some foreign-funded enterprises, have moved to these countries, forcing us to give up the market share after years of hard work.

The situation in other export industries is also not optimistic.

Recently, the Institute of open economy of the University of foreign trade and economics of China investigated the export and import situation of textile, light industry, Minmetals and chemical industries, as well as the export situation of enterprises in Zhejiang, Jiangsu, Guangdong and Guizhou.

The findings show that the US subprime mortgage crisis deepens and the global economic downturn continues. In such a worsening external environment, coupled with the accelerated appreciation of the RMB against the US dollar, the sharp rise in prices of raw materials, the adjustment of the export tax rebate rate, the implementation of the new labour law and the increase of interest rates, China's exports are facing serious difficulties.

At the same time, the problem of factory closures and unemployment increases is becoming increasingly prominent.

There is a view that China's economic development should increase domestic demand and reduce dependence on exports.

The reason for this is that private consumption accounts for about 70% of GDP in the United States, while in 2006 the residents consumed only 39.2% of GDP in China.

But these two statistical methods are different and comparable.

In the private consumption of the United States, only 1/3 of the material products are involved.

In 2006, the total retail sales of social consumer goods amounted to 4 trillion and 307 billion 730 million US dollars, accounting for 32.6% of the GDP (131947 billion US dollars) in that year, while the proportion of 2007 in China was 36.2%, which is actually higher than that in the United States.

Because exports involve only physical products.

Therefore, enlarging the proportion of domestic material consumption in GDP and slowing down exports, thus stimulating the economic development is very small.

At present, China's manufacturing industry ranks second in the world, and the output of 172 kinds of products ranks first in the world. The complete industrial system has made China the foundation of manufacturing power.

However, the possible pfer of products has provided more opportunities for developing countries with more labor cost advantages such as India, Vietnam and Kampuchea.

In early May, a Hongkong Trade Development Council (TDC), together with the Hongkong garment industry association and the Hongkong Footwear Association Group