How Does The Appreciation Of RMB Speed Up The Impact On Shoe Companies?

In March 28th, the exchange rate of US $1 against the RMB was 7.0137, rising from 7.0518 straight line to nearly 400 basis points in a week.

According to this trend, "breaking 7" is just around the corner.

In fact, in the first quarter of this year, the appreciation of RMB rose to 3.9%, while the revaluation of foreign exchange reform to the end of last year was only 12%.

The accelerated appreciation of the renminbi has led to a strong rebound in the industry, especially export enterprises. Academics have begun to voice appeal to reassess the policy of accelerating the appreciation of the renminbi.

Appreciation is suffering from inflation. "This year, my business is not going bankrupt, even if Amitabha is," Xu Jianrong, the head of a large shoe making enterprise in Dongguan, told reporters weakly on the phone. "The money I made since the opening of this business may be posted to this year."

As a shoe manufacturer that exports all the products to the United States, Xu Jianrong's shoe factory has certain representativeness in Dongguan, Guangdong.

"My attitude towards accelerating appreciation must be strongly opposed, but we are just an enterprise, unable to control the accelerated appreciation of the renminbi policy, and can only take this loss."

What worries Xu Jianrong is not just the accelerated appreciation of the renminbi, "if only the appreciation of the renminbi is fine, but now that the price of food and drink is rising, who can stand it?"

He gave the reporter an account. Because of the new labor law, the average wage of his factory workers has reached 1400 yuan, which has risen sharply compared with before. Even though it is not easy to recruit workers, the former shoe factory does not recruit male workers, but now it is not enough to recruit men.

In addition, the water and electricity charges (because of electricity shortage, the cost of generating electricity from the enterprise is two times the electricity price of the grid) and other expenses have risen sharply, and the enterprises can not afford heavy loads.

The subprime mortgage crisis in the United States also affected Dongguan.

Xu Jianrong said his shoe factory usually has 800 thousand pairs of orders per month, but orders for April this year are only 400 thousand pairs.

According to the reporter's understanding, Dongguan's exports account for 1/3 of Guangdong, and Guangdong's exports will account for 1/3 of the whole country. Therefore, judging from the situation in Dongguan, the export situation this year will be changed due to the impact of the subprime mortgage crisis in the United States.

"The key to the problem is the lack of pricing power made in China."

Xu Jianrong said that an enterprise like him has no power to talk about pricing power, and the pricing power is almost entirely in the hands of foreigners. The increase of product cost can not be pferred.

"For example, the cost of a pair of shoes in the past is $3.6, and I can pick up the order of 4 dollars, but the cost is far more than 4 US dollars, and the order is still 4 dollars. Do you think I will pick up such an order?

Then death is the death.

"For the accelerated appreciation of RMB, enterprises rebounded greatly."

Zhang Wenjun, general manager of a foreign trade company in Foshan, Guangdong, said: "the appreciation of the renminbi may be only a cause. Besides, the price of raw materials has risen sharply, the wages of workers have increased, and the influence of the American subprime crisis has brought about a great impact on the enterprises."

Not all businesses are on the brink of collapse as the shoe factories begin to differentiate.

Because Zhang Wenjun is a foreign trade business, he has the opportunity to cooperate with many export oriented enterprises.

According to his observation, due to the pressure of RMB appreciation, export oriented enterprises are being differentiated.

Some large enterprises have a higher level of technology, and gradually get a certain degree of pricing power, which can pfer part of the increased cost.

Even if these enterprises raise their prices, foreign dealers will also rush to it, because the profit margins left to foreign distributors are still large.

For example, the order of a high-grade garment manufacturer in Foshan has not risen, because the order of some small businesses has been pferred to the hands of this large enterprise, while the small garment processing enterprises producing so-called "big road" are facing the risk of bankruptcy.

"Not all enterprises have no alternative to the appreciation of the renminbi," said Zhang Xiaoji, Minister of Foreign Economic Research of the State Council Development Research Center. "For example, export enterprises with monopolistic advantages will be able to pass on the increase of costs through the way of raising prices."

But Zhang Wenjun pointed out that even if some enterprises have some pricing power, the cost of pferring them will only account for about 1/3.

Reporters also noted that since the RMB exchange rate reform, the total appreciation has exceeded 15%.

Although few enterprises have a profit margin of 15%, there are still many enterprises that have not lost money. The main reason is that the increase in efficiency has partly digested the increase in costs.

Guangdong Yida Textile Co., Ltd., through the integration of the production process, further tap the potential of efficiency improvement. They hope to achieve the cost reduction through the comprehensive utilization of thermal energy after commissioning of the power plant that they invest in.

In the Nanhai District of Foshan, Guangdong, many textile enterprises have been moved to the textile industrial park to provide fuel, steam and centralized sewage treatment systems for enterprises, so as to reduce the production cost of enterprises.

Jonathan Anderson, chief economist of Asia UBS, wrote recently that for China's light industry, as long as the RMB appreciates gradually, it can digest the pressure of appreciation itself.

He believes that for the light industry sector, the key issue is not how big the renminbi will appreciate in a year, but how to appreciate it.

The renminbi rises a few percentage points per month and a one-time increase in a year is quite different for light industrial exporters.

Although the cumulative appreciation is the same, but if a one-time appreciation of 10%, they will certainly have no way out.

Enterprises have no time to adjust the terms of the contract and have no time to raise the price.

If it is a step by step, the appreciation of the renminbi will not have much impact on their profit margins.

Should the policy be reassessed?

The yuan has appreciated nearly 4% in the first quarter, and many export enterprises expect RMB appreciation to exceed 10% this year. The RMB exchange rate is expected to be around 6.5 yuan at the end of this year.

As for the acceleration of RMB appreciation, whether enterprises have enough hedging tools is a problem that policymakers have to consider.

Reporters learned in the interview that many enterprises believe that the current risk aversion tools are still not enough.

Zhang Wenjun's business is to avoid risks by buying a long-term way, but he can only buy 50% of the quota.

The reason is that there is a great deal of uncertainty in the foreign exchange collection. If the amount of money purchased is not completed, the bank will impose a fine on him, which will far exceed the gains from avoiding exchange rate risk.

"Although the enterprises have rebounded against the accelerated appreciation of the renminbi, the national macro-control has a focus in every period, and there is a pressure to maintain inflation. Now it is estimated that inflation will be pushed up by accelerating appreciation."

Zhang Wenjun said.

However, whether the appreciation of RMB can inhibit inflation has been debated.

Ha Jiming believes that through his exchange rate pmission effect research results show that the RMB appreciation in the long run is conducive to curbing inflation, but the short-term effect is small.

If the nominal effective exchange rate of RMB is appreciated by 5~10%, CPI will only decrease by 0.2~0.4% after six months, and will drop by 1.5~3.0% after three years.

As part of the export sector rebounded strongly during the accelerated appreciation of the renminbi, some scholars began to call on the central bank to reconsider the policy of accelerating appreciation.

The reason is that the accelerated appreciation of the RMB exchange rate not only can not restrain inflation, but also aggravate inflationary pressure.

At present, the accelerated appreciation of the RMB exchange rate may partly inhibit the price of some imported commodities. From the overall perspective, it will intensify the expectation of RMB appreciation and stimulate more foreign exchange capital inflows.

To prevent inflation from worsening, the Renminbi should stop accelerating appreciation.

However, Zhang Xiaoji, Minister of the Ministry of Foreign Economic Research of the State Council Development Research Center, believes that the appreciation of the renminbi is not unilaterally determined by China. He even disagrees with the so called "accelerated appreciation".

"First of all, the depreciation of the US dollar caused by the US interest rate cuts should not be regarded as the appreciation of the renminbi, because the depreciation of the renminbi relative to the euro and yen is not a unilateral decision of the Chinese government."

Zhang Xiaoji believes that although the appreciation of RMB is not the sole purpose of solving inflation, it will be worse if it does not appreciate. We should take a comprehensive view of the impact of RMB appreciation.

"If the central bank does not buy large amounts of dollars, the rise of the renminbi is worth faster."

He said.