RMB Appreciation Takes Tolls on Enterprises.doc

1、RMB Appreciation Takes Tolls on EnterprisesHu Guang， the owner of a small factory in Shenzhen， Guangdong， has about 30 men work for him. His factory mainly produces connecting lines for industrial devices that are exported to Europe. The May and June were the low season for his factory， and the appr

2、eciation of RMB has taken toll on its profits. Fortunately， his factory had begun it long before it and thus is able to survive and even to embrace a good outlook. The appreciation of RMB became a popular topic recently， as the exchange rate created new records. The median price of RMB went through

3、the fastest increase as of April. In April and May， the exchange rate of RMB against US dollars increased by 1.45%， the fastest ever from October 2010. Along with the increasing cost of raw materials and labor force， the RMB appreciation is another problem for enterprises. As experts pointed out， th

4、e RMB appreciation apparently has more influence over the industries with little value-added and the long-term orders whose prices are hard to be fixed. The Shrinking Value After the massive transfer-out of manufacturing， Hu Guangs factory was one of the few staying in Shenzhen. Influenced by the ma

5、rket， his factorys profit margin dropped from 30% last year to this years 20%. The appreciation of RMB has made its dent onto his business. In June， he tried to improve his offer for a Hollandbased client by 10%， but that was rejected； instead， the customer wanted him to lower the price by 40%. Hu G

6、uang guessed that the recession of the Hollands market caused by the European debt crisis forced the client to do so. But they cannot avoid loss even if the client did not require lowering the price. When one U.S. dollar could be exchanged into smaller than RMB 6.2 yuan， one of his business orders，

7、which previously valued 10 euro per item， now valued 8 euro per item. “Most of our offers are made with the U.S. dollar， but we also have euro-based prices. The clients taking euros would like to ignore the significant change between the RMB-USD exchange rate and refuse our requirements of price adj

8、ustment， ” Hu Guang . His factorys annual sales could amount to 7-8 million yuan. The orders varied greatly in the value. Some big ones might value US$50，000， and the aforementioned client who refused to adjust the price actually did not take an important place in Hu Guangs factory. However， Hu Guan

9、g worried that no other orders would come in the low season. “The factory needs to keep running even though there no profits. We must keep our workers occupied， or else they might choose to leave， ” he said. Compared with others， Hu Guangs factory is free from high turnover of em-ployees. Most of hi

10、s 30 workers have been working for him for a long time. In the low season， Hu Guang is inclined to take any orders that can suffice the cost of raw materials and the payment of workers， so as to keep the workers from leaving. A worker for Hu Guang could earn more than 3，000 yuan， including the overt

11、ime. His factory was founded in 2009 and at first employed around 100 people. However， after suffering two months loss of 300，000 yuan in the low season thanks to the lofty labor cost， Hu Guang decided to cut a large part of his workforce after a long-time consideration. From then on， the number of

12、his workers remained around 30， and he could employ 10 additional interim workers when the high season comes. Hu Guang believes that the current workforce structure is quite reasonable. “I cannot afford more people. Neither can I lay off any people， or else I cannot find the workforce big enough in

13、the high season.” Hu Guang beamed at the mention of the high season. He said that only in the high season， from September to October， could his factory earn profits. At that time he seems to find his backbone and is able to prioritize the orders that can earn profits， delay the ones that cannot acce

14、pt price adjustment and reject those that cannot accept postponed delivery time. “In the high season， I feel like a boss， while in the low season， I am even humbler than ordinary workers， ” Hu said. Hard days for dealers Though factories were influenced by the RMB appreciation， Hu Guang should feel

15、lucky compared with trade companies. “Factories might suffer the lower profits to the worst， like having the profit margin drop from 20% to 10%. They could survive only if they can afford the cost of materials and labor force. But the dealers， entrapped by factories and clients， have to deal with th

16、e two parties carefully. If there are no large orders， the factory would like to increase the price while clients usually rejected it. The trade companies cannot earn money at all if the deal is not made， ” said an expert. A dealer in Shenzhen is mainly engaged in exporting electronic gadgets for ai

17、r conditioners and TVs to India. Each gadget could only bring the profit of RMB 3-4 cents. The factory working with it required a price increase， and the appreciation of RMB further thinned out his profits. The dealer wanted to change to another path， but could not find where to go. The factories wh

18、ose products do not have high values are influenced no less than the trade companies. One of Hu Guangs friends has a factory to produce electric resistance. The profit margin is only 20% and the price of a single piece of product is lowered to a few cents. The clients gave out the orders of a year a

19、t the beginning of this year. Knowing the risk of exchange rate， Hu Guangs friend still took the orders， because the competition in the market is too furious. Yidatong Enterprise Service Co.， Ltd， is an enterprise registered in Alibaba. It makes use of the Internet to provide the one-stop integrated

20、 services of foreign trade logistics and capital flow for over 10，000 small enterprises in the Pearl River Delta. Xiao Feng， its vice general manager， said that the RMB appreciation mainly had the influence over the long-term orders. For example， the half-year orders are hard to deal with because th

21、e U.S. dollar would depreciate in this period， which will result in the loss of domestic suppliers. So suppliers might offer higher prices when it comes to long-term orders， but it is hard for buyers to afford them. Xiao Feng also said that the indus-tries with low value-added， say， the capital- or

22、labor-intensive enterprises， are facing extremely big stress. Taking long-term orders means they might have loss in the future， but refusing long-term orders might mean they have no business， since short-term orders cannot support the factories operation in the low season. The transformation Last ye

23、ar， the life was hard for Hu Guang. An American client which made audio device owed him 1 million yuan because of its broken capital chain. This companys representative in Shenzhen ran away to who knows where. The lawsuit was finished before the end of last year， but Hu Guang c o u l d n o t reclaim

24、 the arrears by now. The court ordered the commodities of the U.S. company to be sealed and stored in the warehouse of customs for supervision. The customs administrative department was given the right to auction the commodities and send back the money back to Hu Guang. However， Hu Guang needs to pa

25、y for the storage fees， which is 600 yuan a day. He worried that the 200-thousand profits earned from the auction would be offset by the cost of storage. The internal problems are frustrating enough but the external problems still linger on and haunt Chinese companies. The foreign trade situation is

26、 complicated and the trend of RMB value is hard to forecast. In spite of this， Hu Guang still holds confidence in the future. His confidence comes from the new products. The connecting lines of industrial devices are the business he started in 2010. In 2009， his company mainly produced the data line

27、s of mobile phones and a single line could only be sold at less than 2 yuan. Then a client asked him why he did not produce connecting lines for industrial devices， which intrigued him very much. After an investigation into the market， the single price of connecting line was at least dozens of yuan

28、and many of them were priced at hundreds of yuan， and the cost was not high. More importantly， there were a few enterprises in this field and there are a lot of dealers. So he made up his mind to do this. Now， the connecting lines， which are priced at hundreds of yuan in the foreign countries， could

29、 be bought from Hu Guang with the price tag of several dozen yuan. His products are now slowly eating away foreign companies market share. And， due to the fluctuations of exchange rate， Hu Guang has already decided to abandon the production of mobile phone data lines. Transformation seems to be a ne

30、cessary path for enterprises when the RMB is appreciating quickly. Xiao Feng said that enterprises need to update their products and increase their value-added to deal with the changing external environment. He added that most of manufacturing enterprises in Shenzhen had moved out and the influence of RMB appreciation on this city is more apparent in the service. “Manufacturing was tormented and the trade volume went down. The financial services and some other services are hard to maintain themselves as well.”