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English>>China Business

Stronger RMB puts squeeze on shoemakers (2)

By Yu Ran  (China Daily)

07:43, October 27, 2012

Experts have suggested that the slump in overseas orders was actually caused by the appreciation of the renminbi.

"The sharp decrease in demand from abroad was mainly caused by the appreciation of the renminbi, which cost China its advantage of having the lowest labor and materials costs in the global trading market," said Rui Meng, a professor of finance and accounting at China Europe International Business School in Shanghai.

Rui said it is better for SMEs to take short-term orders to control the risk of being affected by fluctuating exchange rates and to add conditions to contracts that prices can be adjusted depending on fluctuations in exchange rates.

Over the long-term, SMEs should improve the quality of their products through more innovative techniques and stand out from the competition with uniquely branded products, Rui said.

"Replacing workers through automation or moving certain production lines overseas to save on labor costs is also a good option as a long-term plan for medium-sized enterprises," Rui said.

In fact, some SMEs are tackling quality and labor cost issues by shifting to mechanized manufacturing.

"Some of the SMEs in the association have bought machinery from Italy to replace hundreds of workers with 10 to 20 university graduates, saving on labor costs and manufacturing high-end products of a higher quality and price," said Xie from the Shoe and Leather Industry Association.

However, the appreciation of the renminbi had little influence on large and medium-sized enterprises that have regular clients and long-term orders.

"We've already got a reputation with regular clients who rely on our products as being a permanent supplier, and that won't be affected by the slight appreciation of the renminbi from the long-term perspective," said Zheng Zhe, general manager of Zhejiang Gulifa Group, a medium-sized tool-making enterprise in Wenzhou.

Zheng said that if renminbi appreciation continues, the company will probably have to make some pricing adjustments.

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