Foreign Shoe Companies "Look Forward To" The Continued Appreciation Of The RMB

On October 13th, on the one hand, the decline in domestic purchasing power of RMB has led to a sharp rise in the cost of production in Renminbi; on the other hand, the cost of production has risen sharply.

In the wake of almost all sides of the world urging, oppressing or looking forward to the appreciation of the RMB exchange rate, the international community has overlooked one of the most fundamental and important facts: the real purchasing power of the renminbi in China has dropped sharply in recent years.

What is the internal derogatory and external misplacement of RMB?

In recent years, China's domestic food and consumer goods prices have risen sharply, the prices of raw materials and wages have been rising, and real estate prices are soaring nationwide.

This shows a very simple economic common sense: now a dollar yuan is worth less than the yuan in the past. For example, in 2005, a shoe factory in China basically needed only 50 yuan yuan.

But why did the international media and public opinion almost unanimously request the appreciation of the renminbi? The reason is also simple: the prices of Chinese exports are too cheap.

In the case of Nike sports shoes, the cost of production in the United States may not be produced at about 7.5 US dollars equivalent to the current exchange rate (1 US dollars to 6.7 yuan) equivalent to 50 yuan, and it may cost US $20 in production cost.

As a result, the exchange rate of the RMB against the US dollar must rise to 1 yuan to 2.5 yuan, and the United States will be able to produce Nike sports shoes with the cost equivalent to 50 yuan equivalent to 20 dollars.

Therefore, the American shoemaking companies will certainly think that the low price competitiveness of China's export products comes from the undervaluation of the RMB exchange rate.

In fact, the exchange rate of RMB against the US dollar has risen from 1 US dollars in 2005 to 8.27 yuan, rising to 1 yuan in early October 2010 to 6.68 yuan, or about 20%.

Of course, for those who want to rally the US manufacturers and Chinese manufacturers to raise the cost of US dollar quotations for similar products, the appreciation of the RMB exchange rate over the past few years is far from enough.

The plight of Chinese exporters

The internal derogatory effect of RMB is a substantial increase in the production cost per unit product of RMB in China for a large number of exporters of manufacturing products.

Faced with fierce market competition, China's exporters only have to choose to compress export earnings and suffer self - suffering from rising costs of Renminbi production.

Take the production of Nike shoes as an example, when the production cost rose from 50 yuan in 2005 to 60 yuan in 2010, in order to guarantee long-term export agreements, it could only be exported at the US dollar in 2005.

China's numerous exporters are forced to make huge profits in order to maintain orders in the export market under the sharp rise in domestic production costs in Renminbi.

As a result, the annual export profits have squeezed the export profit margins of China's numerous exporters to no lower level.

During his recent visit to the United States, Chinese Premier Wen Jiabao also admitted that most Chinese exporters had only 2% gross margin on their exports.

If the RMB exchange rate is rising by 3%, countless Chinese exporters will be totally unprofitable or even lose money after the export to the US market in 2010.