The Impact and Countermeasures of RMB Appreciation on Export-Based Enterprises in China


liquidity, it is categorized into the industry with a high value of RMB assets, benefiting from attracting a large amount of international capital; (4) ones such as aviation, electricity, oil refining, paper-making, engineering machinery, and so on, which will see a reduction in costs owning to its main dependence on procurement of foreign raw materials or equipments, or because of the benefits resulted from large amounts of external debt service and the exchange gains and losses, in particular the aviation industry with the dominance of the domestic market; (5) high-tech ones relying upon importing technology, which don’t have any advantage in intellectual property rights related to key sciences and technologies, will also maintain the momentum of a large amount of imports in a certain period of time, and are able to keep up their advantage in costs under the premise of a rise in Yuan.

Major industries damaged by Yuan’s rise are as follows: (1) as for export-oriented ones, such as the textile industry (especially garment industry with the high degree of dependence on exports more damage, followed by the cotton spinning industry and wool industry), household appliances, building materials, whose product competitiveness will be weakened to a large extent; (2) foreign trade enterprises have a disadvantageous position in the industry chain, and their import business will be unable to gain excess profits from the appreciation of the RMB, with the export business suffering a lot; (3) mining, petrochemical, and non-ferrous metal industries, which will be given a big blow by their export business; (4) agriculture with a larger proportion of exports.

2. The impact of RMB appreciation on China's export enterprises

2.1 Adverse effects on China's export enterprises

2.1.1 The export of manufactured goods is greatly affected by fluctuations in exchange rate on a wide basis

RMB appreciation will induce a increase in currency exchange cost in Chinese export firms, resulting in the loss of price advantage. The cost refers to the RMB cost paid domestically on the net revenue from one dollar’ worth of exports. China's manufacturing exports are more concentrated on low-end products, with competitive advantage weak. These products compete with other ones mainly by means of prizing, and as a result the Yuan’s rise will have a retarding effect on their exports. For employees in the manufacturing sector, those that are seriously affected may face the reduced income, or even the risk of unemployment. The adverse impact of enterprises in labor-intensive industries will be greater than ones in capital-intensive industries.

2.1.2 Causing a slow growth in the export of most of products related to raw materials

The majority of products related to raw materials don’t have any competitive edge in the export price, with a stronger reliance on the exchange rate, such as paper, cotton yarn, black metal (steel, manganese, etc.), aluminum, wood and other decorations. RMB appreciation will induce a slow growth in exports of these primary products and raw material products, having a negative impact on economic growth in the short run. It will also reduce the exports of crude oil, refined oil, timber, copper, gold and other resource-based commodities, and bring about the loss of the enterprises, worse still such cascade effects as increased unemployment and banking bad debts. Because our resources are not rich, these resource-based products belong to highly energy-consuming and polluting industries. Over-exports of resource-based products make it easy to intensify the tense contradiction between domestic coal, electricity and oil transportation in the short term. In the

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