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China's recent decision to reform its exchange rate regime has attracted attention from exporters. A more flexible exchange rate means pressure of a stronger yuan against the U.S. dollar. Five years after China first moved into a managed floating exchange rate regime, export companies now have enough experience to minimize the impact of the forex rate fluctuation.
On June 19th, China's central bank announced its intentions to reform the Renminbi exchange rate regime for greater flexibility. The chairman of a clothing company in Eastern China's Zhejiang Province says he turned on his computer to check the forex rate immediately after hearing the news. The company is now paying more attention to the forex rate, to avoid risks.
Yu Qiangchun, Board Chairman of Zhejiang Mixishi Clothes Co., Ltd. said "For example, the customer pays me one million U.S. dollars for an order with a delivery term of six months. I will first consult what will be the yuan exchange rate against dollar six months later. The bank will give me an rate and I will calculate accordingly. "
Many exporters prefer to avoid forex rate risks, instead opting for a forward settlement exchange.
Jin Yanchen, General Manager of Boteli Valve Group said "Since last year when the exchange rate of the U.S. dollar and euro fluctuated, we began to adopt a floating exchange rate mechanism when sign trading deals.
In addition to financial tools, Chinese exporters are also raising the added-value of their products for higher profits, to deal with the impact of forex rate fluctuation.
Jin Yanchen said "The profit margin of ordinary products is very limited and is easily influenced by forex rate movement. But the profit margin of products with higher added value is quite considerable. So they can resist the forex risks. "
Analysts say further promotion of forex rate reform could encourage exporters to upgrade their technology. They suggest companies should expand their market and invest more in research and development.
Hualian Machinery Group is a leading package machinery enterprise. The company has invested 5 percent of its income in the research and development of new products every year since China first reformed its exchange rate mechanism five years ago. The company now processes 26 patents at the national level, with 22 of them acquired after the forex rate reform.
Jiang Qi, Deputy GM of Hualian Machinery Group said "After the forex rate reform we realized that a price war had no future. We must improve the quality and add-value of our products. So our competitiveness has been strengthened and can easily minimize the impact of forex rate fluctuation. "
Many Chinese exporters have found a way to deal with the more flexible forex rate. Having survived the global financial crisis, these companies have learnt that internal development is the best way to fight against external challenges.
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