Transcript 投影片 1 - Hong Kong Shue Yan University

What are the effects that RMB
appreciation bring?
Group 4
Yau Lut Pong, Leo
053028
Lee Wing Hang, Joe
053066
Kan Wan Chung, Florence 053067
Chan Ka Ho, Ken
053134
Ho Kin Lun, Hugo
053141
Outline
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Introduction
Why RMB revaluated
How China’s economy being affected
How does RMB appreciation affects Hong
Kong
Conclusion
Introduction
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China launched a reform of the RMB exchange
rate system at 1994
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Pegged to USD at 8.28 to 1 USD since 1995
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Exchange rate was strictly controlled
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Fluctuation rate negligible
Exchange rate trend
May 2002-May 2007
Why RMB revaluated
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China’s trade surplus to EU, US
International Pressure
Unfair trade advantages
China's import and export with main trading partners in 2006
China’s import and export to US
Total
Export
Import
Surplus
(in billion USD)
(in billion USD)
(in billion USD)
(in billion USD)
2006
262.68
203.47
59.21
144.26
2005
211.63
1,62.90
48.73
114.17
2004
169.62
124.95
44.67
80.28
2003
126.3
92.7
33.86
58.84
International pressures
Pressure form Japan and US
 US Secretary of Treasury
John Snow, Henry Paulson urged that
RMB needs a more flexible exchange
rate”
 “ Schumer-Graham’s Bill” , propose
tariffs on Chinese products.
 Penalize Chinese for manipulate
currency
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John Snow
Henry Paulson
Appreciation
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China agreed to gradually reform the exchange
rate
Revaluated at 8.11 to 1usd at 21,July, 2005
Allows the RMB to rise or fall 0.3 percent daily
Pegged with a basket of foreign currency
The basket is dominated by US dollar
Exchange rate trend
May2005- May2007
appreciation
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RMB increased about 7% since 2005
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We expected RMB will goes up progressively
How appreciation affects
China’s economy?
How appreciation affects China’s
economy?
RMB
& US dollar:
fixed exchange ratio in the past
RMB appreciation:
lower amount of RMB to exchange US$1
Great impacts:
import and export perspectives
Focus: textile & energy industry.
Textile industry
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China joined WTO
Strong textile nation throughout the world
Labor-orientation sections
Great influence on the export of garments
In 2006:
China export value: US$ 969.08 billion
Textile industry:
US$ 117.5 billion (12.1%)
Impacts on textile company
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Different level of impacts on:
Large companies
 Small-and-medium sized companies
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For large companies,
Small extent of influence
- High margins originally
- Fixed proportion of the international market
a smaller decrease in profits
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For small-and-medium sized companies,
Great influence
Lack of competitive power
More likely to face bankruptcy
 cause unemployment
Workers in textile industries:
from low/medium income families
 trigger great social problems
Foreign company may shift their
factories to other countries after
RMB appreciation …
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Before RMB appreciation,
China is a cheap labor nation
RMB appreciation increase labor cost
Textile industry: labor intensive industry
So, total production cost greatly increased
Find out other alternatives…
Alternatives…
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Other low cost labor nation
E.g. Bangladesh
Salary: > US$0.07 /hour
If US$1 : RMB¥7.8.
US$0.07 /hour = RMB¥0.546 per hour
Cheap labor
RMB appreciation
Lose competitive advantage
Energy industry
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Rapid development
High demand on raw material e.g. fuel
Not produce all herself
Rely on import
Impact on energy industry
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Appreciation on RMB
Positive effect
Pay less for raw material
Cost of production declines  Price of product
decreases
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According to the Customs, in 2006, the amount of
imported raw material was about US$ 87 billion.
If RMB (now RMB¥ 7.8: US$1) appreciates 10%, it can
achieve to the level of RMB¥ 7: US$ 1.
Imported cost reduces 10%  save at least US$ 8.7
billion.
RMB¥ 7: US$1, US$ 8.7 billion = RMB¥ 61 billion.
Reduce the imported cost of raw material when RMB
appreciates.
Example
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China Southern Airline
30% capital spends on fuel
Huge loan overseas e.g. maintenance
Every 1% appreciation  RMB¥ 316 million
income from exchange
How does RMB appreciation
affects different industry in
Hong Kong?
Tourism industry
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Mainland is Hong Kong’s biggest source market
Comprise half of the tourists in Hong Kong up
to 8% of the economic activities
↑ RMB, ↑purchasing power of Mainland tourists
Hong Kong is a cheaper place to travel
When buying some luxury items, save quite a lot
of money compared to recent years
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Individual Visit Scheme now covers 38 Mainland
cities
Government wants to extend the scheme to six
other provincial cities
Retail Industry
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Shopping is the main purpose of nearly 90% of visitors
Contribution of overnight visitors’ shopping spending
to total retail sales value has increased from about 9.5%
in 1998 to 17.8% in 2005
Mainland tourists contribute to half of the total visitors,
a large proportion of the sales value are spent by them
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The increasing purchasing power of Mainland tourists
make them willing to spend more money on shopping
We expect RMB will revalue steadily in the future ,we
can see that there will be a continue growth in retail
industry in Hong Kong
Per capita spending in 2005: $3,829
Spending pattern of overnight IVS
Shopping
$2,612
68.20%
Misc. (e.g. local
tour,domestic
transport) $325
8.50%
Meals outside
hotel $519
13.60%
Hotel bills $373
9.70%
Source: Economic Analysis and Business Facilitation Unit, Financial Secretary's Office, Government of the Hong Kong Special Administrative Region
What mainland visitors purchase
Appliances
3%
Fine Gift
5%
Wine & Spirits
10%
Gourmet Food
18%
Fragrance
18%
Tabocco
26%
Leathergoods
27%
28%
Telecom & Entertaunment
Souvenirs
29%
39%
Jewellery & Watches
Confectionery
50%
Cosmetics
50%
Fashion
53%
0%
10%
Source: 2005 TFWA-ACNielsen Chinese Traveller Study
20%
30%
40%
50%
60%
Manufacturing Industry
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20 years ago: many Hong Kong
manufacturing companies moved to Mainland
China
Reasons: cheap labor and low rent
Decreases the operation cost
Company can operate effectively and
efficiently
The situation is totally different in these few
years
 Main reasons:
 RMB appreciation
 Crude oil price increases
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RMB appreciation
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Negative impacts on Hong Kong manufacturers
in the Mainland who engage in labor intensive
industry
Such as clothing, electronics, toys and shoes
industry
Operating cost include labor cost, rent,
electricity, etc are all paid in RMB
RMB appreciation  higher operating cost
 lower profit
Crude Oil Price Increases
Year
2004
2006
Price/ barrel
US$25
US$70
ABOUT 3 TIMES
Source: WTRG Economics
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Example: Milo’s Knitwear, a textile industry
A Hong Kong manufacturing company with
Mainland operations
incomes are in US dollars, Euro and other
foreign currencies
expenditure are in RMB
RMB appreciation results in higher costs
forced to increase the price of their products
Catering Industry
RMB appreciation brings both advantages and
disadvantages to catering industry
For disadvantages:
 most of their layouts imports from Mainland
 increases their operating cost a lot
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Example: McDonald’s
majority of foods supply from mainland
operating costs increases together with higher
rent, electricity fee, food supply from
mainland, etc
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RMB appreciation also benefits to catering
industry
Spending pattern of overnight IVS
Shopping
$2,612
68.20%
Misc. (e.g. local
tour,domestic
transport) $325
8.50%
Meals outside
hotel $519
13.60%
Hotel bills $373
9.70%
Source: Economic Analysis and Business Facilitation Unit,
Financial Secretary's Office, Government of the Hong Kong
Special Administrative Region
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stayed overnight mainland tourists used about
$3829 per people in average
about $519 on meals outside hotel
Suppose RMB appreciates about 3% in 2007
stayed overnight mainland tourists will spend
about $534 on meals outside hotel
catering industry will benefit a lot when RMB
continues to appreciate
Conclusion
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Main reason for RMB appreciation:
International pressure
Both positive & negative impacts occur
For China
Textile industry  -ve impact
Energy industry  +ve impact
For HK,
Tourism industry  +ve impact
Retail industry  +ve impact
Manufacturers in China  -ve impacts
Catering industry  +ve/-ve impacts