Pressured on external conditions to speed up the appreciation of the renminbi
Starting from June 19 of this year, China once again announced that it will further advance the reform of the RMB exchange rate formation mechanism and enhance the flexibility of the RMB exchange rate. As one of the troikas driving the development of China's economy, the export trade involves many people's jobs. After China implemented the exchange rate reform in 2005, the RMB began to appreciate, showing a wave-like upward trend. So far, the RMB has appreciated by 21% against the US dollar.
Then, since September of this year, the U.S. government has been exerting pressure on the Chinese government on the exchange rate of the renminbi, and it is imperative to let the renminbi appreciate faster and increase the rate of appreciation. At the same time, the renminbi has been slowly rising against the US dollar, benefiting from the continuous expansion of China’s foreign trade surplus and the smooth implementation of the RMB exchange rate reform system. As of September 21, 2010, the exchange rate of US dollar against the yuan has reached 1 US dollar = 6.7135 yuan.
The Effect of Renminbi Appreciation on Security Enterprises
From the overall macroeconomic point of view, the trend of RMB appreciation has been unavoidable. The exchange rate of the national currency will have a real impact on the domestic economy regardless of whether it is going up or down, which has both advantages and disadvantages. After looking up relevant information and discussing with related professionals, the author came to the following results.
The beneficial effect of RMB appreciation on security companies:
1. Reducing the cost burden of imported energy and raw materials
After 30 years of reform and opening up, China’s science and technology have achieved considerable development. There has been a qualitative leap forward in the production of product parts, but it is limited by objective reasons. At present, China's key components in some products rely on foreign suppliers' import supplies. If the renminbi is revalued to a reasonable extent, the burden on China's imported energy and raw materials can be greatly reduced, which will allow domestic companies to reduce costs and increase their competitiveness.
2. It is conducive to the promotion of China's industrial restructuring
The appreciation of the renminbi will inevitably bring about a new round of competitive adjustments for export-oriented security companies. The appreciation of the renminbi will inevitably squeeze the profit margins of those low-end profitable companies, making low-end products that do not have technical content. Foundry companies are increasingly unable to survive. In such an external environment, only those export-oriented enterprises that truly adhere to product wins, persist in quality and technology, and improve their operating standards through standardized management can gain room for survival.
The adverse effect of RMB appreciation on security companies:
According to the foregoing, although the appreciation of the renminbi directly reduces the purchase cost of raw materials, the proportion of imported raw materials in the total cost of products is minimal, and it does not fundamentally change the cost of products. At present, China's export-oriented enterprises still operate mainly in the form of OEM and ODM processing and manufacturing, and win with low prices. Since there is no independent brand and customer loyalty is not high, enterprises are in a relatively passive position in the negotiation process of bargaining prices. Raising prices will mean the loss of price advantages. The result is often the loss of customers and orders, so the appreciation of the renminbi After the increase in other costs, it is difficult to completely compensate for the increase in export prices. The company bears most of the loss of operating profits, and the product advantage is reduced accordingly.
At the same time, some export-oriented companies were restricted by the poor performance of the international market and began to switch to the domestic market. This will inevitably increase the degree of competition in the domestic market. If it is handled poorly, there may be vicious competition and affect the development of the entire industry.
How Security Enterprises Should Face RMB Appreciation
1. Improve product quality and increase labor productivity
As a security company in the product manufacturing industry, the product is the lifeline of its profit. At present, China's export-oriented security companies are still simple assembly enterprises of OEM and ODM, or low-end security products with low technology content and low added value. Therefore, export-oriented security companies can take the opportunity to appreciate the renminbi and introduce foreign production technology and management experience. On the one hand, they gradually reduce the proportion of labor-intensive and low-value-added products and expand the sales of high-value-added, high-profit products; We will increase investment in R&D for high-tech and high-value-added products and build our own brands and competitive products.
2. Mergers and alliances among domestic enterprises
Through partnerships and alliances, there are many cases in which the two companies have changed from competitors to partners. Security companies can use capital operations such as acquisitions, mergers, or alliances to achieve multi-layered learning and understanding of capital, products, technology, and operations, and increase their competitiveness.
3. Acquisition of foreign companies
Instead of considering the increase in export costs brought about by the appreciation of the renminbi, it is better to consider directly purchasing foreign assets and reduce operating costs in the long run. A powerful security company can now completely acquire related foreign companies and take products, technologies, brands, and channels into the bag. Although such a large acquisition will result in a considerable amount of investment, taking into account the appreciation of the renminbi, the acquisition cost must be lower than before, and the resources acquired will provide convenience for long-term development. The pros and cons, such an acquisition must necessarily outweigh the disadvantages.
4. Move to or open up the domestic market
The appreciation of the renminbi has the greatest impact on export-oriented enterprises. Therefore, this part of the security companies can consider their own circumstances and move to the domestic market. After all, China is currently experiencing rapid economic growth. Economic policies across the country are also proceeding in an orderly manner. Demand is high, and a move to the domestic market is also a good choice. Of course, some powerful foreign export-oriented security companies may also consider opening up the domestic market, but at the same time they must improve channels, brand promotion, and after-sales services.
Conclusion
The appreciation of the renminbi is already a matter of stagnation. The government will also launch long-term economic planning and favorable policies to guide and help enterprises to strengthen structural adjustment. The banking sector will also further improve financial services, help companies manage exchange rate risks, and provide strong support for corporate development.
Any appreciation of the local currency of any country will in the short term pose a certain resistance to the export of its own products. Regardless of whether the current global economy is recovering or whether it is the case for “double bottomingâ€, the key to our security business is to improve our internal strength. Only products with excellent quality, fair prices, and perfect after-sales services can be invincible in the competition.