Chinese Enterprises Are Immune To RMB Appreciation?

In November 18th, Zhang Fan wrote in the financial times, a key question in the debate over the RMB exchange rate in recent months is what impact RMB appreciation will bring to Chinese enterprises.

According to economic theory, a country's currency appreciation usually weakens the competitiveness of its export enterprises in the international market. But looking back on China's economic data from 2005 to 2008, it seems that it is not the case.

During this period, the RMB appreciated more than 20% against the US dollar, while the total export volume in the same period has been rising.

This gives the impression that Chinese enterprises seem to have no response to exchange rate changes.

Is that true? The microscopic data depicted different scenes for us.

The author, together with Professor Yu Miaojie of Peking University's National Development Research Institute and a large sample data from a large scale enterprise database, found that at the above stage, although the average output value and profit margin of all enterprises continued to rise, the proportion of exports to total production value (referred to as export rate) has been declining.

Our research defines export enterprises as more than 40% of sales as export-oriented enterprises.

This is a group of enterprises with higher output value, more workers, higher proportion of exports and lower profit margins.

The study found that not only the export ratio of these export-oriented enterprises declined, but also the profit margins continued to decline during the 2006-2008 years.

Meanwhile, in the past 2000-2008 years, these enterprises have also undergone significant structural changes.

For example, the proportion of electrical and electronic industry to all export-oriented enterprises, from less than 30% in 2000, to more than 50% in 2008; the proportion of textile and clothing industry narrowed from close to 30% in 2000 to less than 20% in 2008.

That is to say, in the nine years, the share of output value of electrical and electronic enterprises almost doubled, while the share of textile and clothing almost narrowed by half.

It can be seen that the impact of exchange rate appreciation on different enterprises is different. Generally speaking, it has a greater negative impact on enterprises engaged in general trade and labor-intensive enterprises.

At the above stage, there is a quiet structural adjustment at the enterprise level, that is, the adjustment of the export / domestic structure of enterprises.

This structural adjustment is different from the usual, top-down, structural adjustment through administrative means, which is the reaction of enterprises to price signals (exchange rate is also a price).

Thousands of such micro adjustments eventually had a global impact.

The rise of profit rate is accompanied by the decline of export rate, which shows that the structural adjustment of enterprises from export to domestic sales does not affect the overall performance of management, that is, this adjustment is successful.

Of course, not all enterprises are not affected by exchange rate adjustment. While some export oriented enterprises have declined in export rate, profit margins have also declined.

In the short term, the adjustment of the export / domestic structure of Chinese enterprises is related to the short-term fluctuations of the global economy and the depression of the European and American markets.

In the process of recovering from the depression in 2008, the global economy has witnessed significant unsynchronism.

While China's economy is already showing signs of overheating, the US economy is recovering slowly.

Under such circumstances, there has been friction caused by the inconsistency of macroeconomic policies.

Considering the depressed market in Europe and America, it is obviously a wise decision for Chinese enterprises to adjust their export / domestic structure.

In the long run, historical experience shows that the basic market of any big country is at home.

The rising cost of labor has, on the one hand, reduced the competitiveness of China's exports, on the other hand, has increased the income of consumers, thereby expanding the domestic market.

In this sense, the rise in wages is a double-edged sword.

With the increase of labor cost and the expansion of domestic market, China's economy is facing the shift from overseas market to domestic market. China's domestic market will become one of the central markets in the world, while the overseas market will be relatively atrophic.

This means that there will be some fundamental changes in China's domestic and foreign economic relations. For example, in the future, we may see foreign clothing producers exporting to China, or Chinese businessmen going abroad to set up factories to export to China.

Of course, this fundamental change will not take place overnight, it will take 20-30 years.

During the period, the relative scale of the overseas market and the domestic market will also fluctuate for a short time. The export / domestic structure of the enterprises will also fluctuate for a short time, and the possibility of the export rate rising again.

But in the long run, the adjustment of export / domestic sales structure is consistent with the pfer of target market.

In this sense, enterprises are in the front.