Reducing Exports And Expanding Domestic Demand To Cope With The Pressure Of RMB Appreciation

Guangzhou customs statistics show that from 1 to February this year, there were 1512 enterprises in the Pearl River Delta region to participate in export shoes, representing a decrease of 1855 over the same period last year.

Statistics from the footwear association of Asia show that since last year, there are more than 1000 shoe factories and related supporting enterprises in Dongguan, Huizhou and other places in Guangdong.

The appreciation of the renminbi has been cited as one of the main reasons for the above phenomenon.

Some shoe companies are speaking frankly. If the US dollar goes up to 6.2-6.5 to the central parity of RMB, we will consider changing or moving out. This is the bottom line for many shoe companies.

Perhaps, as one industry has said, at least for nearly two thousand enterprises that have given up export business, the shoe market is now in winter, but in spring, it is not known when to come back.

The sharp reduction of export shoe enterprises for Lee Jung (a pseudonym) is particularly difficult this year.

"Last year we could earn 30 thousand to 50 thousand a year, but basically we haven't made any money this year."

Lee Jung sat in the rest area of Dongguan shoe Street Plaza, Houjie Town, and told reporters reluctantly.

According to him, one of the main reasons for his predicament today is the appreciation of the renminbi.

Since 2008, the pace of RMB appreciation has accelerated. In the first quarter, the appreciation of RMB has exceeded 4%.

In April 10th, the central parity of the US dollar against the RMB "broke 7", which has risen by 6.91 as of June 12th, and has hit a new high since 6.9015.

The momentum of RMB appreciation and the continuation of its appreciation expectation make it difficult for traditional export enterprises, including shoemaking, to be heavily burdened.

"I have a friend who has received a single offer, when the US dollar is 7.5 yuan, but it has dropped to 7.2 and more than 20 thousand less.

How much is a year?

It's not much. "

Lee Jung told reporters that to compensate for the loss of exchange rate and the impact of cost increase, shoe factories had to raise prices, but the increase in prices led to a reduction in export orders, coupled with reduced demand from abroad, and shoe factories were having a hard time.

Data from Whampoa customs in Guangdong showed that in the first quarter of this year, Dongguan exported 160 million pairs of shoes and exports, down 8.5% from the same period last year.

The decline of exports has directly impacted Lee Jung and his leather factory, which are mainly export oriented footwear enterprises.

Lee Jung's factory is located in a remote area of Wanjiang, Dongguan, which mainly produces high-grade shoe material and leather.

Factory size is not big, three production lines, forty or fifty workers.

But in previous years, such a small leather factory can create tens of millions or even billions of output in one year.

This year, Lee Jung told reporters that there was nothing to do in the first year. The company sold 300 thousand feet of leather every month. Now it is only 10 million feet a month, and sales in the first quarter are reduced by 50%.

Correspondingly, the profit of leather produced by the former company is 10% to 15%, and now the profit is sometimes less than 5%.

Three years ago, a director of a shoe material stall in Fujian, who had been opening a stalls in Ho Po square, described the light business of the stall business to reporters.

"The business here is not the worst."

Lee Jung told reporters, "not far from the other two shoe material city business is worse, some stalls may not have a customer a day.

Many of them are closing down. "

The reporter's subsequent visit confirmed Lee Jung's statement.

The huge shoe material city, because of its few customers, was so cold and spacious that the clerks even sat around to play poker.

It is understood that there are about 5 or 6 shoe material factories in Dongguan, and the customers they are facing are basically small and medium-sized shoe enterprises.

The decline of their business is a token of the plight of many small and medium-sized shoe companies.

A small shoe factory owner with a scale of only seventy or eighty told reporters that in the vicinity of his shoe factory, the 3 shoe factories which opened the same period with his shoe factory opened in less than a year and went bankrupt.

Statistics from the Asian Footwear Association confirm the statement of Lee Jung and the boss.

According to the Association statistics, since last year, more than 1000 shoe factories and related supporting enterprises in Dongguan, Huizhou and other places in Guangdong have been closed down due to various factors, or have been closed up by the courts, or have moved to other areas.

Statistics from Guangzhou Customs show that the footwear export enterprises in the Pearl River Delta region have been greatly reduced.

From 1 to February this year, 1512 enterprises in the Pearl River Delta region were involved in the export of shoes, 1855 fewer than the same period last year. Among them, private enterprises decreased by 1484 compared with the same period last year, foreign-invested enterprises reduced by 92, and state-owned enterprises reduced by 23.

6.2-6.5 exchange price or the bottom line for many years, Guangdong's total foreign trade imports and exports account for 1/3 of the whole country, and the dependence on foreign trade is as high as 160.4%. Dongguan has made great contributions.

Among them, the traditional labor intensive industries such as Dongguan footwear industry are more famous for export.

Houjie Town is the most concentrated area of footwear industry in Dongguan. It has about more than 1000 large and small shoe factories and thousands of shoe materials and other supporting enterprises and shopping malls. More than half of the shoe enterprises are mainly exported. Therefore, relative to Jiangsu and Zhejiang provinces and Chengdu and other major shoe making bases, Dongguan footwear enterprises are particularly affected by external environment, and the appreciation of the renminbi and the slowdown in the US economy are all unavoidable.

Lin Yan, vice manager of Fujian Fuwei import and Export Co., Ltd. told the Shanghai Securities News reporter that because of the appreciation of the renminbi, the export profit 2%-3% is not guaranteed or even lost at present.

And there was a gross margin of 5%.

According to her, as a sports shoe production base, 20% to 30% of the small shoe factories in Jinjiang have been closed down.

Shi Xiaohong, Wenzhou's Commerce Department of Cheng Bo Gu Er shoes, said that the average profit of the company's mid-range products is now 7-8 yuan, and the low end profit is 5 yuan. The exchange rate factor has reduced the profit of every pair of shoes exported by the company by 2 yuan.

Chen Weihai, who is in charge of shoe business in Shantou, Guangdong, also told reporters that "because of the unpredictable, exchange rate has the biggest impact on company profits."

Luo Yan, director of foreign trade in Guangzhou District, Chengdu, expressed similar views.

She believes that relative exchange rate, labor costs and rising prices of raw materials are more affordable.

The uncertainty of the exchange rate makes it difficult for many export shoe enterprises or foreign trade enterprises to determine export prices, resulting in some shoe companies who dare not take or do not want to pick up, or even take the initiative to break the contract after receiving the order.

A related government official told reporters that in one of his research enterprises, a company received orders through a branch office set up in Hongkong, but because of the appreciation of the renminbi, the performance would incur huge losses, which eventually had to close the Hongkong branch.

"Now there is nearly one million bills, but profits can only earn 10 thousand if they invest 1 million, do you?"

The shoe material industry is also faced with the situation that we dare not take it alone.

Lee Jung told reporters, "the profit margins of shoe companies become smaller, and naturally we have to compress our profits. But such a low profit must bear the danger of shoe factories closing at any time. Who dares to pick up this single?"

Some shoe companies said that if the US dollar rose to 6.5 or 6.2 against the central parity of RMB, it would be necessary to consider changing or pferring.

For them, perhaps this is the true bottom line of their existence.

The relevant departments of the Guangdong provincial development and Reform Commission predicted in its 2008 Guangdong economic outlook that the impact of the RMB appreciation and the adjustment effect of the export tax rebate policy on Guangdong's exports will gradually emerge in 2008.

Guangdong exports are expected to exceed US $420 billion in 2008, but the growth rate will drop to around 18%.

Officials of the Guangdong Provincial Department of foreign trade and economic cooperation believe that the foreign trade situation is far from optimistic. This year is the most difficult year in history.

The traditional labor intensive production and export industry represented by footwear industry is obviously the first to perceive the adjustment effect of factors such as RMB appreciation and so on.

The risk of insurance is expected by some experts. This year the renminbi will continue to appreciate.

This is probably the biggest negative for export oriented shoe companies with a small profit margin.

According to the press, it is usual for shoe enterprises to take orders to get the full refund period for 3 months at the end. Some large customer cycles may exceed 6 months. Although both sides expect the exchange rate to be made at the time of signing the contract, the expectation of RMB appreciation by the shoe companies usually can not compare with the actual appreciation of the bond.

Fortville Lin Yan told reporters that the two installment of a large client's order was good, but because of the long cycle, the appreciation of the renminbi would probably lead to the last batch of losses.

The 70% customers they work with are large customers like WAL-MART.

Raising prices has become the common choice of many shoe companies.

It is understood that in the first two months of this year, the average price of exported shoes in Guangdong was 3.2 US dollars / double, up 37%.

But Li Peng, secretary-general of the Asian Footwear Association, said that the increase in export prices was not as big as the increase in costs, and that most powerful enterprises could raise prices.

Settling in euros or setting the price validity period has become one of the measures for some shoe companies to avoid exchange rate risks.

Chengdu AI min Luo Yan told reporters that at present, 60% of the company's customers come from Eastern Europe and central Europe, and the 70% payment is still settled in US dollars.

To avoid exchange rate risk, the company plans to settle 60% in euros.

But according to reporters, the current more than 50 thousand person scale Qingdao double star export products are only 10% to 20% euros in settlement.

Chen Weihai, a public shoe industry, said that customers generally disagreed with the settlement of euros, and the European Union's clients would also convert the euro into US dollar settlement, which would earn the exchange rate difference.

In the survey, more than 80% of the manufacturers surveyed export 100% of their exports in US dollars.

Turning to the euro settlement, for most shoe companies, there is still huge resistance.

In order to avoid exchange rate risk, some companies agree with customers that the quotations are valid within a range. If the time exceeds the time limit, the price will be adjusted according to the exchange rate, and then the price will be renegotiated.

But the result is that some shoe companies are more willing to take orders from trading companies, because trading companies settle in Renminbi.

Some shoe companies chose to reduce intermediate costs.

A shoe industry employee told reporters that many Dongguan shoe enterprises have moved to Chengdu or Jiangxi, and trading companies have been pferred to Vietnam.

But Liang Shaosheng, the shoe department of the external business development companies in Guangdong, believes that the information is blocked in the mainland, although the cost of labor is low, but other costs may increase, such as logistics costs.

In the 60s of last century, the world shoe center moved to Japan and South Korea in Italy in 70s, moved to Taiwan in China in 80s, and pferred to Guangdong Dongguan and Zhejiang Wenzhou in 90s.

Nowadays, there are signs of moving to the inland provinces or moving out of the shoe industry center.

In an interview with reporters, a businessman said that the dilemma they encountered in Dongguan today is the same as when they left Taiwan ten years ago.

In his view, whether raising the price or settling in euros, or setting the price validity period, or trying to move out the cost of compression, it will not be a radical solution to the RMB appreciation and the reversal of export oriented policies today and in the near future.

"Industrial upgrading" or the final choice of traditional labor intensive industries such as shoes enterprises.

However, Liu Guokang, deputy director of the Coordination Office of Dongguan's private economic development, reminds us that industrial upgrading is not to move out traditional industries such as furniture, clothing and shoes, but also to extend from the enterprise level to the upstream and downstream.

For example, a Clothing Co., Ltd. was established in Dongguan last year.