The depreciation pressure of RMB depreciation export enterprises doubled the price demanded by customers

“Export business is denominated in US dollars. When the RMB depreciates at the end of last year and early this year, customers will ask us to cut prices. This is the biggest pressure, not the impact of depreciation or appreciation on profits.” A home appliance export company in Xiamen is responsible for People told reporters.
On May 30, the central bank announced that the central parity price of the yuan was 6.5784, a sharp depreciation of 294 basis points from the previous trading day, the lowest since February 2011. On the 31st, the median price was 6.5790, which was 6 basis points lower than the previous trading day. Overlaying the Fed’s interest rate hikes, the expectation of RMB depreciation is heating up again, and foreign trade companies engaged in import and export business are the first to be affected.
The reporter learned that although export enterprises may benefit from devaluation, customers will require export companies to cut prices, and export companies will make some concessions in order to avoid customer losses. The heads of several export enterprises interviewed said that if the RMB exchange rate falls further, enterprises will delay the settlement of foreign exchange, which may cause the exchange rate to fall further.
The president of a Shanghai-based large-scale commercial bank, Shanghai Free Trade Zone, said that after the leverage of foreign currency liabilities in the second half of last year and January this year, the de-leverage of foreign currency liabilities of enterprises has come to an end, but there are still cases of repaying foreign debts in advance.

Depreciation brings bargaining pressure
In theory, the depreciation of the renminbi is good for exporting enterprises, but it is bad for imported enterprises. However, the reporter learned from a number of export companies that export companies are more eager to maintain the stability of the RMB exchange rate. Once they depreciate, they are also facing bargaining pressure.
Ying Xiuzhen, deputy general manager of Ningbo Zhongji Group, who is engaged in import and export trade, told reporters that the depreciation is good for export enterprises in the short term. The goods already sold will increase income and profits, and once the depreciation trend is formed, customers will also ask for price cuts.
Generally speaking, the export goods are denominated in US dollars, and it takes 3-4 months for the export enterprise to order from the quotation to the payment. In other words, the export price that the export enterprise now receives is generally the order placed in February. Due to the depreciation of the RMB, the payment received by the exporter is RMB and then “sitting” the exchange gain.
Fang Guobao, general manager of Hangzhou Lingxiu Industrial Co., Ltd., who is engaged in the textile industry, told reporters that the impact of RMB depreciation is positive, but the impact is not great. The depreciation of the renminbi has helped sales in the US market, mainly due to the recovery of the US economy and the increase in domestic imports. The markets in Brazil, Europe and Japan are still relatively weak. Some customers in the Eurozone have recently postponed orders, and sales have not improved much.
Fang Guobao said that the real benefit of the depreciation of the renminbi is to expand sales, but it may not be able to expand profits. Because the depreciation is good for exporting enterprises, although the profits of exporting companies increase, the peer companies will lower the price of the US dollar, and some customers will also ask for price cuts, so that the price of export commodities denominated in US dollars will fall. But now the depreciation has just taken shape and there is no price adjustment yet.
Under the expectation of RMB depreciation, enterprises may delay the settlement of foreign exchange. Ying Xiuzhen said that under normal circumstances, enterprises need capital turnover, and they will settle foreign exchange as soon as possible after receiving foreign exchange. “If the funds are abundant and we are sure that there is a depreciation expectation, we will also wait for the opportunity to settle.”
According to the calculation of the SAFE data, the exchange rate for the first four months of this year (used to measure the willingness to meet foreign exchange, which is equal to the ratio of customers selling foreign exchange to banks and foreign exchange earnings) is 61.54%, 55.81%, 58.70%, and 62.64%, respectively.
From the 2007 to 2011 appreciation of the renminbi, the exchange rate has remained above 70%. At present, the exchange rate has been lower than this level by about 10 percentage points, indicating that the willingness of enterprises to settle foreign exchange has not been strong this year. If the devaluation of the renminbi is expected to increase, the company will postpone the settlement of foreign exchange, and this data will decline in the future.
The data also shows that the volatility of the RMB exchange rate last year has had a significant impact on enterprises. According to Wind data, in 2015, 2112 listed companies with domestic A shares incurred a net exchange loss of 36.994 billion yuan, accounting for 3.92% of the net profit for the same period. Compared with the same period of last year, it increased by 2.76 percentage points.
"Although it may benefit from depreciation, we still hope that the currency value will be stable." Fang Guobao said.

Foreign currency de-leverage is coming to an end
Previously, due to the spread between domestic and foreign, many companies borrowed foreign debt for the purpose of saving financial costs. Since the August 11th exchange reform, the RMB has depreciated significantly. Some enterprises have repaid their foreign debts in advance and actively adjusted their asset and liability structure. The total size of foreign debts in the second half of 2015 has fallen sharply.
According to the SAFE's data, as of the end of 2015, the balance of China's full-caliber external debt was US$1.4162 billion, down 15% from the end of June 2015. Among them, the balance of foreign currency foreign debt (accounting for 54%) fell by 11.31% over the same period, and the balance of foreign debt of non-bank financial institutions such as enterprises decreased by 9.26% over the same period.
The president of the aforementioned Shanghai-owned large-scale commercial bank Shanghai Free Trade Zone told reporters that in the second half of last year and in January this year, enterprises paid more foreign debts. Now it is nearing completion, but there are still cases of repaying foreign debts in advance.
“There has been no repayment of our bank in advance, but the industry still exists.” The former state-owned large commercial bank branch said, “The demand for foreign currency borrowing is still there, but it has been significantly reduced compared with the same period last year. Foreign currency borrowing is mainly concentrated in ' Going out of the business, there is no foreign currency borrowing for cost savings."
According to the preliminary calculation of the internationally recognized foreign debt security index, China’s debt ratio was 13% at the end of 2015, and the debt ratio was 58%. The SAFE believes that all indicators of external debt are within the security line.
"Although there is pressure from capital outflows and economic slowdown, China's current external debt is still very small relative to China's economy. Therefore, there is no risk of currency mismatch in China." Zhao Yang, chief economist of Nomura China, told reporters.

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