Exchange Rate Touches Sensitive Nerve Of Foreign Shoe Enterprises

On October 27th, at the international resource sourcing fair, which was unveiled last week at the Asia International Expo in Hongkong, the participating enterprises in Fujian reflected the acceleration of the appreciation of the RMB against the US dollar.

Insiders said: "in 2010, the participation of exhibitors in the autumn exhibition of global sourcing fair reflects the good momentum of the global economic recovery. Most exhibitors from the Greater China region.

China is leading the pace of global economic recovery - China's foreign trade exports grew by 48.5% and 38.1% in May and July respectively, all of which are strong evidence.

The global economy has warmed up and foreign trade orders have increased, but foreign trade enterprises are not happy.

Reporters at the exhibition learned that exchange rate movements, global interest rate rise and the appreciation of the renminbi were expected to make foreign trade enterprises more cautious.

Simplification, simplification, simplification, and simplification

Since the beginning of September this year, the central parity of RMB against the US dollar has started to climb all the way, and has continuously hit a record high.

In September 21st, the central parity of RMB against the US dollar was reported at 6.6997, breaking through the 6.7 pass in one fell swoop and entering the "6.6 era".

This figure means that since the people's Bank of China announced the resumption of foreign exchange reform in June 19th, the RMB has appreciated by 2.12% in just over three months.

Reporters interviewed at the exhibition found that the RMB exchange rate affects the sensitive nerves of foreign trade enterprises.

Although the United States originally postponed the latest international economic and exchange rate policy report in October 16th, the risk of "currency war" between China and the United States was postponed. But for foreign trade enterprises in China, the exchange rate friction that may occur at any time is still "another boot on the ground" in Beijing.

"Recently, the RMB exchange rate has reached a new high, and the profit margins of our enterprises have narrowed considerably. Several export orders signed in the first half of the year are already on the brink of losses."

At the exhibition, many foreign trade enterprises are worried about this.

Chen, a staff member of a luggage export company in Quanzhou, told reporters that this year, considering the great fluctuation of exchange rate and the bad grasp, they must be very careful in receiving orders, and dare not pick up large bills and long lists, and try to make some large ones smaller and longer.

"I am always concerned about the change of the RMB exchange rate."

Su Guoyong, vice president of Fujian daily chemicals import and Export Chamber of Commerce and general manager of Quanzhou times Hao daily necessities Co., Ltd. has been in Hong Kong for many years to participate in the global sourcing fair. His company mainly produces shower gift sets, and its products are sold to European and American countries.

He told reporters that since the second half of this year, the renminbi to us dollar parity has approached the "critical point" of most foreign trade enterprises' appreciation expectations.

RMB appreciation of 1% per unit, for foreign trade enterprises, that is, a direct reduction of 1% of profits.

Now every change of base point will make enterprises feel pressure.

"Like our industry, the order cycle is long, from negotiations, orders to shipment for about 9 months, a slight appreciation of the renminbi, some long list, large single loss may occur."

Su Guoyong said.

There is little room for price increases.

In the face of the accelerated appreciation of the renminbi, whether the new orders should be raised?

The antique furniture on the booth of Quanzhou stellar group limited attracts some European and American buyers to inquire.

Wu Jinzhong, executive deputy general manager of the company, told reporters that their products have been exported to Europe and the United States for over 20 years. They have maintained long-term cooperation with some buyers and have some loyal customers abroad.

However, workers have not been able to recruit workers this year.

"Workers' wages have risen three times this year, 1500 yuan for ordinary workers and 2000 to 2800 yuan for skilled workers.

Factory workers back home to help us recruit workers, the total cost of travel back and forth, the person who came to the end of the year, enterprises have to give the referee 300 yuan reward.

The cost of recruiting a worker is only 1200 yuan.

"Wu Jinzhong said.

"Although the cost pressure has been rising, we have been doing odd jobs over the past two years, and it is more difficult to raise prices."

Wu Jinzhong also said that the appreciation of the renminbi means that the dollar denominated commodity competitiveness weakened.

"After the appreciation of the renminbi, we must make the export price of foreign products unchanged, and we must further reduce the price of products. This can not cause any impact on our labor-intensive enterprises."

He said.

According to Su Guoyong, after the outbreak of the financial crisis, some international buyers' purchasing strategies have changed.

For example, they have been working with the US parity retailer DollarGeneralCorp (DG).

DG was previously responsible for procurement in Asia by their immediate institutions in Hongkong.

This year, they commissioned a professional agency to purchase. The professional agencies will make a broader comparison to identify suppliers to find products with higher cost performance, which is a challenge for suppliers.

"In recent years, the number of daily chemicals and cosmetics import and export enterprises in Xiamen, Fuzhou and Quanzhou has been increasing. There are some disorderly competition between prices. It is hard to raise prices," Su Guoyong said.

Quanzhou Li luggage Co., Ltd. Li surnamed leader told reporters reluctantly, now do luggage industry, homogenization competition too much, price war is still the main way of competition.

"The raw materials are on the rise here, and there will be a price to compete with other enterprises. The buyers from Europe and America have just come out of the financial crisis, hoping to purchase some cheap and good products.

Apart from a few new products, most of our export products have not been raised.

Mr. Li said.

Rising cost of corporate finance

On the day of the opening of the global sourcing fair, it was the second day that the central bank issued interest rate messages. The major media in Hongkong published the news in a prominent layout.

Some exhibitors have talked about their views.

"After the increase in interest rates, the life of SMEs will be even more miserable."

Quanzhou Ming Quan Clothing Co., Ltd. Mr. Chen analysis, since this year, because of soaring cotton prices, appreciation of the renminbi and rising labor costs and other factors, the profit margins of enterprises have been compressed, clothing foreign trade enterprises have great pressure to survive.

"Raising interest rates at this time means that the cost of using capital will increase, the price competitiveness of export products will be reduced, and the survival of export enterprises will be more difficult."

Mr. Chen said.

Data released by the National Statistical Office on 21 may show that the factory prices of manufactured goods increased by 5.5% over the first three quarters of this year.

Among them, PPI rose 4.3% in September, up 0.6% over the same period.

"Raw materials are skyrocketing, clothing is only released in the two quarter of the year, prices have long been determined, manufacturers can only carry on internal digestion."

Mr. Zhuang, a new garment company in Humen Town, Guangdong, told reporters that the purpose of the central bank's interest rate hike is to control domestic inflation. For the enterprises that purchase raw materials from the international market, the pressure on foreign trade enterprises, especially downstream export enterprises, will be greater and greater.

"In the case of increased financing costs, we can only try to balance the pressure.

If we increase the purchase scale to enhance bargaining power, improve product qualification rate and labor efficiency, we will reduce the pressure on banks to raise interest rates.

Mr. Zhuang told reporters.

Try every means to avoid risks

Faced with the current complex situation, many foreign trade enterprises have taken precautions, and have taken some measures to cope with the possible pressure of appreciation in the future.

Strategy 1: the use of long-term financial instruments such as foreign exchange and settlement.

With regard to the issue of exchange rate, a group of foreign trade enterprises began to use long-term banking and foreign exchange business to avoid risks.

"Foreign trade enterprises have a high volume of foreign exchange settlement, and exchange rate is an important indicator of their financial position."

Mr. Huang Tanwei, President of the global resources Exhibition Department, has been dealing with foreign trade enterprises for more than 20 years. He has a deep understanding of the importance of exchange rate to foreign trade enterprises.

"In the international financial market, forward selling and selling business is the most commonly used tool for hedging."

Mr. Huang Tanwei said that developing long-term forward selling and foreign exchange can make full use of the hedging function of forward sale and sale. Through the long-term settlement of foreign exchange, we can iron out the impact of exchange rate fluctuations on foreign trade companies, so that the company can concentrate on production and operation. When the exchange rate fluctuates significantly, the company still maintains a stable profit level.

"We also adopt forward settlement and sale, but the general time is not too long. In the 3 to June, the quota is only between 3 million yuan and 8 million yuan."

Wu Jinzhong told reporters.

Miss Zhang, the International Business Department of Xiamen branch of Bank of China, said that after the reopening of the exchange rate reform, the exchange rate volatility intensified. Enterprises could lock in the forward exchange rate at the right time, avoid the risk of large fluctuations in exchange rate, and also lock in the exchange rate of single order business so as to lock in the proceeds.

"However, there are some risks in forward settlement and sale, including exchange rate risk and delayed delivery.

Foreign trade enterprises should carry out strict risk control, follow the principle of locking exchange rate risk and hedging, and do not engage in speculative or arbitrage trading.

Miss Zhang reminded.

Miss Cheung also suggested that in view of the long-term appreciation of the renminbi, customers could choose more dollar loans in the way of financing.

Secondly, export enterprises can also avoid the risk of RMB appreciation by signing short-term contracts, implementing gradient quotations, and negotiating floating exchange rates.

Besides bank products, credit insurance can also effectively avoid exchange rate risk.

China Export and Credit Insurance Corp Xiamen branch official told reporters that in order to avoid exchange rate risks, especially RMB appreciation, trade financing under export credit insurance is also very effective.

It is reported that foreign currency loans acquired by foreign exchange through the bill can be settled into Renminbi and locked in advance.

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Strategy two: use RMB cross border settlement

The appreciation of the renminbi is expected to continue to grow. It will face more severe exchange rate risks for the import and export enterprises that often use the US dollar for trade settlement.

The cross-border RMB settlement business, launched in July last year, allows exporters to bypass the US dollar and settle accounts with overseas buyers directly through the renminbi, which not only locks the cost and revenue ahead of time, but also avoids the risk of exchange rate.

The reporter realized that most of the cross-border trade RMB settlement carried out by Minnan foreign trade enterprises was mainly related to the payment between related enterprises, and the import business accounted for the overwhelming majority.

Domestic export enterprises are mainly SMEs, bargaining power is relatively low, and the availability of international renminbi, and other factors, so that the current cross-border RMB settlement of exports is relatively small.

Xu Sumin, governor of Xiamen branch of the Standard Chartered Bank, said that enterprises should persuade their trading partners to use cross-border RMB settlement business. They should not only think about themselves, but also work with trading partners to share the benefits gained through RMB settlement, thereby reducing the cost of the entire supply chain and striving for "win-win".

"As China becomes more and more important in international trade and various measures to encourage the use of RMB overseas, the recognition and acceptance of RMB settlement by trade enterprises across the world will be further enhanced, and the use of RMB in Global trade will gradually increase.

Foreign trade enterprises may dare to test the cross border trade RMB settlement in order to avoid the risk of exchange rate fluctuations.

Xu Sumin said.

A recent survey released by HSBC on Global trade enterprises shows that with the promotion of RMB settlement in Global trade, the willingness of domestic and foreign trade enterprises to use RMB settlement is increasing. About half of China's Hongkong and Malaysia enterprises will consider using RMB settlement in cross-border trade in the next half year, and nearly 1/4 of the foreign trade enterprises in mainland China will also consider RMB settlement, which is close to the euro.

Strategy three: independent innovation is more important than price.

In addition to circumvention of exchange rate risks through financial instruments, foreign trade enterprises are the fundamental way to increase their added value through technological innovation and to win quality and competitiveness through technological innovation.

Xiamen Heng Hao Travel Products Co., Ltd. has set up two booths at the procurement fair. The company has independent intellectual property rights. Its R & D center develops more than 300 new products every year. Currently, it has acquired more than 100 patents and utility models for leisure products such as picnic bags, which makes the company confident in the international market.

"If we want to take the initiative in exchange rate, the key is to have products with independent R & D capability or high added value."

Lin Yan, general manager of Xiamen Heng Hao Travel Products Co., Ltd., general manager of the marketing center, admitted that independent innovation made them less vulnerable to the financial crisis than those of the low-end enterprises.

In this regard, Mr. Huang Tanwei also agreed.

He said: "although the price is very important, the price is not the final decision, you can be cheaper, others can be cheaper than you. The most important thing for an enterprise is to have its core business to attract a steady number of buyers."

A survey of global resources shows that the new suppliers looking for by international buyers should have certain R & D and manufacturing capabilities, conform to international standards, financial stability, provide flexible production plans, receive small orders, and have rich experience in foreign trade.

Strategy four: start a brand without worrying about success.

The continuous development of the domestic market has become a strong support for many foreign trade enterprises.

Wu Jinzhong told reporters that they began to try the domestic market last year to reduce the impact of exchange rate.

But domestic sales need to brand and establish sales channels, which is a challenge for foreign trade enterprises.

Xiamen Heng Hao Travel Products Co., Ltd. started its own brand in the domestic market two years ago.

"Brand is very important! The profit of our own brand in domestic sales is twice as much as that of OEM export."

Lin Yan revealed.

"But in the domestic market, we need to establish brand image and set up sales channels. All of these need to throw money in a big way, and the effect is not immediate. Creating brand takes time and patience. At the beginning, we can not have too much illusions about the domestic market."

Lin Yan reminds.

Related links

Forward settlement

Business forward settlement and sale is a foreign exchange hedging financial product approved by the people's Bank of China.

The principle of paction is to sign a forward sale and purchase agreement with the bank, stipulate the foreign exchange currency, amount, time limit and exchange rate of the future settlement and exchange, and conclude the foreign exchange settlement business according to the currency, amount and exchange rate prescribed by the agreement, so as to lock in the current cost of foreign exchange settlement and sale.

In terms of specific operations, foreign trade companies quote customers on the basis of forward exchange rate, and at the same time predict foreign exchange settlement contracts with banks based on foreign currency repayment so as to lock in the company's exchange rate risk.