China's Foreign Exchange Reform Forced Shoe Companies To Move Westward (1)

Over time, the central bank decided to terminate. RMB The practice of linking the US dollar exchange rate with a reference to a basket of currencies enhances the flexibility of RMB exchange rate.

"On the one hand, there is no significant change in the RMB exchange rate in the near future, so there will be no immediate impact on corporate profits. On the other hand, even if the renminbi appreciates, its impact on China's huge export manufacturing industry is very different from that of the industry and the specific companies. Fu Peng, chief strategist of China International Futures Research Group, was interviewed in an interview with the China Commercial Daily reporter.

He even believes that most industries will benefit from the appreciation of the renminbi. This also makes it easy for us to understand why China's foreign exchange reform is "the goal of the US team".

　　 Export industry Not necessarily damaged

When it comes to the appreciation of the renminbi, people first think that the export industry will bear the brunt of adversely, but in the view of CICC, the overall benefit (or cost) of RMB appreciation to a certain industry depends on two factors: the ratio of export dependence (the ratio of exports to total output) and the proportion of domestic cost in total cost. Industries with higher export dependence and higher domestic costs (such as textile and garment manufacturing) may suffer more losses due to the appreciation of the renminbi, while industries with lower export dependence and stronger dependence on imported raw materials, such as commodities processing industry, will benefit more from the appreciation of the renminbi.

It can be seen that the focus of the debate is mainly on the impact of RMB appreciation on the cost of the export industry, and the potential benefits of the import industry are weakened.

In addition, from a cost / revenue perspective, the appreciation of the renminbi will lead to a rise in the cost of US dollars, which will have a negative impact on the export of enterprises, but at the same time, it will also help the domestic market, because the appreciation of the renminbi will reduce the cost of imports of raw materials. A comprehensive measurement of cost / income requires comprehensive consideration of the impact of RMB appreciation on exports and domestic sales.

Combined with the impact on exports and domestic sales, CICC simulates the changes in the profits of various industries under the 5% appreciation of the renminbi, and draws some conclusions: the winner of the appreciation of the renminbi is the heavy industry that relies on imports of bulk commodities. The appreciation of RMB 5% will reduce the cost of petroleum processing and natural gas production, metal processing industry, transportation equipment and metal mining industry by 2%, 1.3% and 1% respectively.

However, the office equipment industry and the textile and garment industry will be damaged. If the appreciation of RMB is 5%, the cost of office equipment and textile and garment industry will increase by 1% and 0.8% respectively, mainly because these industries are more dependent on exports or their supply chains are mainly domestic.

Surprisingly, exports to the electronics manufacturing industry, electrical equipment industry and general and special equipment industries benefited slightly from the appreciation of the renminbi, which is due to the fact that most of the raw materials they used were imported, so domestic sales benefited more than the extent of export damage. "Although China is a big exporter of personal computers and electronic products, most of them belong to the processing trade. The components to be imported are assembled and shipped to the outside world. This means that for many manufacturers of technology products and sellers who obtain sourcing from China, RMB strength is a pros and cons, and even more conducive to advantages than disadvantages. CITIC Securities analyst Shaw surnamed said in an interview with the China Commercial Daily reporter.

China International Capital Co recently said that although China's computer and electronics manufacturers are one of the industries most reliant on exports, nearly 60% of their cost comes from imports.

In addition, Fu Peng, chief strategist of China International Futures Research Institute, seems that China's export industry has no competitors outside, and the so-called competitors are also from the country. Although the processing industry has no apparent technological content, its demand for logistics, port and mechanic maturity is actually very high. He said.

Fu Peng gave an example to the Chinese Commercial Daily reporter. "The same price of a pair of shoes imported from China is slightly higher than that of Africa and Vietnam, but the gap between quality and production technology may be much higher than that of price difference. Therefore, China's products are still the most cost-effective."

Working in an American family NGO organization MAX said in an interview with the China Commercial Daily reporter, "Americans have a high degree of dependence on Chinese products. In some small and medium-sized supermarkets or chain stores, Chinese products can be seen everywhere, and some even account for over 80%. The consumption of good quality and inexpensive Chinese products has become a habit of Americans. This habit is not easily changed in the short term with the slight changes in prices." Obviously, MAX does not think Americans can quickly find products from another country to replace them.

Fu Peng also asserted that the appreciation of the renminbi has not done any harm to some export oriented enterprises, but has made the value of the enterprises appreciate in an all-round way. In the process, the income of employees will also rise, and the profit margins of enterprises will also rise, thereby accelerating the upgrading of internal industries.

Nomura Securities strategist Dai Shiwen also told the China Commercial Daily reporter that the direct beneficiaries of the appreciation of the Renminbi should not be overlooked. They are all domestic giants, including refineries (such as Sinopec), airlines (such as Eastern Airlines and southern airspace), and commodity importers (such as paper and metal manufacturers).

In Nomura Securities, China's toll roads listed in Hongkong are most likely to profit from this theme. These toll highway shares are similar to Renminbi bonds, offering high dividend yield, dividend yield above average, and 100% yuan cash flow.

Employment is limited.

When we discuss the negative effects of RMB appreciation on the employment of export-oriented enterprises, we may as well review the history. In fact, the appreciation of the renminbi in the past did not harm China's exports and employment. The renminbi has appreciated by 17.5% against the US dollar since its decoupling from the US dollar in July 2005, but China's share in the US import market has continued to expand, even after the outbreak of the financial crisis.

The analysis of CICC pointed out that China's exports were not significantly affected by the RMB exchange rate, partly because China's exports contained much of the imported intermediate goods. At present, the market is worried that even if the RMB is only gradual appreciation, the export of some low profit labor intensive industries in China will collapse, causing a large number of workers to lose their jobs. But the recent experience of Chinese clothing and footwear exporters shows that these worries are unreasonable. The main competitors of Chinese clothing and footwear export enterprises in the US market are from Mexico. In 2009, China's share of clothing and footwear market in the United States was 46%, while Mexico was 37%. Although the renminbi has appreciated all the way since the Mexico peso in 2000, China's share of the textile and clothing market in the United States has risen from 21% in 2000 to 48% in 2009.

After the outbreak of the financial crisis, from September 2008 to March 2009, the yuan appreciated 39% against the peso in Mexico, which led to a substantial increase in the cost of Chinese export enterprises relative to its competitors. The share of Chinese exporters in the US clothing and footwear market actually dropped from 46% to 42%, but as the renminbi stabilized against the Mexico Peso exchange rate, the market share of China's export enterprises rebounded rapidly, even higher than the level before the renminbi appreciated substantially.

This means that even a sudden huge exchange rate impact will have only temporary effects on China's export market share. Once Chinese exporters have adapted to such shocks for some time, they will be able to regain competitiveness. In other words, the low profit margins of some labor-intensive industries do not mean that they lack the ability to deal with the appreciation of the renminbi.

The factory will move westward or will come.

As the appreciation of RMB has squeezed the profit margins of export enterprises in the southeast coastal areas in different degrees, how to maintain or even increase profits under the situation of weakening the advantage of cheap labor force is a difficult problem faced by every export company. In the view of Fu Peng, "factory westward relocation" can solve this problem. If the factory of production products is transferred to the Western raw material base, it can save costs in raw material procurement. At the same time, many idle labor forces in the western region can also be effectively utilized.