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Recognize The Trend Of Exchange Rate Market And Actively Hedge Risks
Jul 27, 2018

In response to the recent depreciation of the RMB exchange rate against the dollar and the increase in volatility, July 23, Foreign Ministry spokesman refuted the renminbi exchange rate manipulation theory, said the renminbi exchange rate is mainly determined by the market supply and demand, there is a reduction of the rise, two-way floating. At present, China's economic fundamentals continue to be good, providing a strong support for the RMB exchange rate to maintain basic stability.


China has no intention to stimulate exports through currency competitive devaluation, which is China's consistent position. The impact of the fluctuation of RMB exchange rate on China's economy still needs to be deeply observed, but the influence of RMB exchange rate fluctuation on foreign trade enterprises is not negligible. From the perspective of industry impact, a weaker renminbi would boost revenues in general trade such as textiles and garments, household appliances and light manufacturing, but the increase in revenues would sometimes be sluggish; for parts of the industrial chain in the middle of labor-intensive processing trade industries, such as mechanical equipment, electronics, etc., due to the increase in import prices of parts and raw materials,


Industry gross margin space will likely be compressed. From the perspective of import shocks, the devaluation of the renminbi not only raises the cost of imported raw materials and components, but also affects the import prices of end products. Part of the supply of domestic manufacturing products will be relatively competitive, thereby promoting domestic products to replace foreign products.


In terms of service export, there are industries and companies such as building decoration, which have overseas engineering contract business, because their orders are settled in US dollars, the devaluation of RMB will increase their exchange earnings. Under the background of opening China's capital market, the RMB exchange rate will become more and more marketable. With the spread of the concept of global liquidity surplus, China's foreign exchange market and even all market price fluctuations are inevitable, the RMB exchange rate fluctuations in the interval is normal and ordinary state of affairs. Foreign trade enterprises should strive to enhance the initiative of hedging the risk of exchange rate fluctuations, the need for accurate use of interval changes, to help enterprises economic and development needs, capital preservation and increase simultaneously. In addition, foreign trade enterprises should take the initiative to improve labor productivity and export market diversification, to enhance their ability to resist risks, especially exchange rate fluctuations, take the initiative to abandon the erroneous thinking of using regulatory thinking to judge exchange rate movements, to avoid making mistakes and to pay more, and to ensure that their ability to deal with exchange rate changes is effectively improved.


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