China's currency, the yuan, was set to trade at 6.992 yuan against the U.S. dollar last Thursday, breaching the 7-yuan mark for the first time since the government unpegged it from the dollar in 2005. This causes grave impact on the exporting businesses of the city. Many companies turn quite cautious about overseas orders.
Sinochem Ningbo is a subsidiary of Sionchem Group of China, a global top 500. The company mainly exports medicines, chemicals and persticides. Recently they feel the pressure brought about by the appreciation of Renminbi. Some export orders even bring losses to the company.
LU Huajun, GM of Sinochem Ningbo: "Roughly in January alone we lost about 10 million due to the RMB appreciation".
According to Lu Huajun, before signing an order, a trading company normally goes through negotiation, confirmation of price and delivery terms, manufacturing and goods delivery. As the flow is quite long, the company will have to suffer losses if the quotation does not cover the appreciation of RMB. To cope with it the company has adopted some new measures.
LU Huajun, GM of Sinochem Ningbo: Firstly, we can use the financial and monetary means to evade such risk. Secondly we will reinforce innovative capacity. Thirdly, we will adjust the industrial structure. Fourthly we will adjust the market structure and explore emerging markets in third-world countries.
Ningbo's foreign trade takes the first place in Zhejiang province. In Feb this year, the export volume reached 2.648 billion US dollars, down 2.4% as against last year. This was the first time it registered a negative growth since 2000. Apart from the America's subprime ills, the price hikes of raw materials and the labor costs, the ongoing appreciation of RMB is a leading cause. To cope with this situation, the authorities of foreign trade believe we need to use financial tools to alleviate the pressure.
Shan Min, chief of Financial Division, Foreign Trade Bureau: We hope our companies can collaborate with banks and use more financial means to evade risks, such as the forward settlement of exchange, Swap, factoring, double factoring, etc.
Shan Min also says trading companies need to improve the technological level. They should reinforce the brand development to increase the competitive edge in the international market.