Yiwu Enterprises Are Facing a Big Challenge

-the Upsurge of Exchange Rate of RMB Against US Dollar

“According to current situation, we are afraid to accept orders of which the delivery date is in April next year. It’s very difficult to offer price.” In front of large orders palced by the Carrefour, France, Chunsheng Huang, principal of Yiwu Tianbo Garments Co., Ltd is particularly cautious. The upsurge of exchange rate of RMB against US dollar is completely out of his expectation.

Profits of The Previous Orders Are Reduced

Since September 9, the exchange rate of RMB against US dollar has hit high records consecutively. Especially on September 21st. the average rate was 6.6997, breaking the 6.7 record.

Although shirt sales in South American market before September was in good condition, and orders are more than the previous years while the appreciation of RMB is uncontrollable and hard to pre-detect. Mr Huang said in depression, “the profit margin of textile and garment enterprises is very low, generally less than 5%. Since the value of RMB is rising so fast, more orders may not be good news.”

Be Cautious of New Orders

“We refused several orders this year in August because the risk is too great under this situation. We’d wait till the Canton Fair.” In front of such unprecedented “special circumstances”, pricipal of Yiwu Xieshou Garments Co.,Ltd Qiyao Cheng adopted the stratagy of “wait and see”.

In reaction to the constant new orders and consecutive rising exchange rate, principal of Zhejiang Bangjie Digital Knitwear Co., Ltd. Wang Jun tried to communicate with old customers and observe their reaction to price rise in combination with the anticipation of future exchange rate so as to offer a reasonable price. “In this way, we can cut our losses and persuade customers into accepting price rise willingly,” Wang said, “The most direct way to avoid exchange rate is to raise price, while it’s uneasy for customers to accept.”

To Make Products More Competitive Is The Way Out

In 2005, when the exchange rate of RMB against U.S. dollar was rising, many Yiwu enterprises adopted euro to avoid exchange rate risk, but now the situation of euro is not satisfactory either. Euro balance is no longer a good choice.

“Facing RMB appreciation, the fundamental way out for enterprises is to make your products more competitive.” Director of Foreign Trade Section of Yiwu Foreign Trade and Economic Cooperation Bureau Wenbing Chou said. Locking the exchange rate or hedging may be effective in the short term, but it’s still too hard to avoid long-term rate risk especially when RMB appreciation rate is so difficult to expect. “If companies have competitive products, raising prices or using RMB for balance will no longer be difficult and the appreciation of RMB will not seem to be so threatening.”

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