By Chen Wei
As September 8 approaches, all eyes are turning to the ASEM (Asia-Europe Meeting) Trade and Investment Exposition, which will coincide with the ninth CIFIT to take place in Xiamen in East China's Fujian Province.
Telecommunications, pharmaceuticals, consumer electronics, chemicals, textiles, agriculture, environmental protection and food are among the many industries to be represented at the expo, which will run from September 8-11.
All ASEM member parties attending the event, including the European Union, the Association of Southeast Asian Nations, China, Japan and the Republic of Korea, will conduct talks on pressing economic issues in Asian and European regions.
Liu Yajun, Director of the Investment Promotion Agency of the Ministry of Commerce, told Express that, as a platform for communication and co-operation between governments and enterprises, and between enterprises themselves, the ASEM Trade and Investment Exposition is dedicated to publicizing the trade and investment environments of ASEM member nations, and fostering economic co-operation and investment exchanges among member nations and enterprises.
"With the deepening of economic globalization and regional integration, ASEM member nations share a bright future regarding the use of resources, market expansion, economic and trade ties, and cross-regional co-operation," said Liu.
The idea for an ASEM Trade and Investment Exposition was initially put forward by Premier Wen Jiabao at the fifth ASEM Summit Meeting held last October in Vietnam.
According to Wen's proposal, the exposition will be run bi-annually by ASEM member nations volunteering to host the event, with China holding the first expo.
Established in 1966, ASEM looks after the common economic and political interests of member nations, forming policy guidance and a co-ordination system consisting of a Head Conference, Ministry of Foreign Affairs Conference and Senior Official Conference.
"In terms of economic and trade co-operation, ASEM, which targets the promotion of two-way investment, has successfully conducted a series of activities to encourage co-operation and made positive progress in economic and trade exchanges between Asian and European countries," Liu added.
The ASEM Trade and Investment Exposition will include four main activities:
ASEM Trade and Investment Forum: Officials, economists and entrepreneurs will be invited to speak on such themes as global economic integration, the opening of trade and investment markets, the improvement of trade and investment environments and the development of certain industries.
|Liu Yajun, director of Investment Promotion Agency of the Ministry of Commerce
An Introduction to ASEM Trade and Investment Policies: A platform for member nations to elaborate on their policies, investment environments, and trade and investment projects, this session is also aimed at providing more information to domestic enterprises interested in investing aboard.
ASEM Trade and Investment Exposition: Up to 1,000 exhibition booths will introduce ASEM, the economic and social development of ASEM member nations, their overall policies and trade and investment environments, opportunities in trade and investment, and competitive projects to be developed.
Moreover, financial organizations, multinationals, importers and exporters, and medium and small-sized enterprises will be invited to promote their business and seek trade and investment opportunities.
Trade and Investment Co-operation Symposium: Various two-way and unilateral symposiums will be organized to promote direct communication between enterprises and to propel significant investment co-operation.
By Zou Hanru
The People's Bank of China (PBOC) on July 21 scrapped the renminbi's (RMB) peg to the US dollar, appreciated its value by 2 per cent and made it adjustable to a basket of currencies -- by any account a very important step in China's foreign exchange reform.
The level and construction mechanism of an economy's foreign exchange rate is decided by the combined fundamentals of the level of economic development and the macro-economic management model.
China had a fixed exchange rate system followed by the "double-track" regime before 1994. The RMB exchange rate was allowed to float after 1994 whenever the central bank deemed it necessary in response to market changes.
That exchange system contributed positively not only to China, but also to the stabilization of the regional and global economy. That was especially true during the mid-1990s Asian financial crisis, when China narrowed the RMB's floating range on its own initiative, virtually pegging it to the dollar. The decision amplified China's image as a responsible regional power.
After nearly ten years of rapid development, China's economy has grown tremendously, and so has its importance across the world.
But with the internal transformation have come widespread global changes, posing new challenges to the process of opening up to the outside world. China's foreign reserve has increased to US$711 billion as exports have dwarfed imports in recent years. China has been drawing fire from major trade partners as the balance of trade keeps tipping in its favour by the day.
If China had continued to resist exchange rate reform, its trade imbalances could only have worsened and become more difficult to fix. This could have hampered its efforts to stimulate internal demand, weakened domestic enterprises' competitiveness in the world market and made it more difficult to open up its economy any further.
The focus of the PBOC's announcement at this juncture is not so much on RMB appreciation as it is on the establishment of a new, more flexible rate-setting mechanism.
It is a crucial policy move taken after years of painstaking research and meticulous preparations and is based on a broad consideration of the present global economic and political situation and China's own reform and development status.
It is a daring decision, to say the least, but not one made without cautious and careful planning.
Premier Wen Jiabao has said more than once that exchange rate reform must proceed "on China's own initiative, under its own control and at a measured pace".
The July 21 move abides fully by Premier Wen's avowed principles and exhibits the Chinese government's ability to take far-reaching decisions and handle with success even the most complex of situations.
Though the new RMB exchange rate will do more good than harm, it will cause some short-term hardships for China's economic growth and employment. Why? Because the RMB's appreciation could slow down exports and the growth of foreign investments in China. That could make the country's economic growth suffer and increase unemployment.
The appreciation of the RMB will also mean the loss of more "hot" money and the withdrawal of interest by speculators, with foreign investors sending their increased value and profits back home.
As long as the RMB exchange rate is kept on a more or less reasonable and healthy level, such growing pains are expected to lessen gradually.
Soon after the central bank unveiled the renminbi foreign exchange reform, Gu Jieping figured out how much she would lose: 2 million yuan (US$246,600).
"That is about 10 per cent of my profits last year," Gu, general manager of Shaoxing-based private firm Zhejiang Huagang Dyeing & Weaving Co Ltd, tells China Business Weekly.
Hundreds of kilometres north in Weifang, Shandong Province, Wei Bensen, foreign trade manager of Shandong Yeliya Garment Group, was also calculating losses to his company.
"It came all of a sudden ... We did not make specific provisions for this although everybody knew it would happen one day," says Wei.
Yeliya might suffer 1 million yuan (US$123,300) in losses on deliveries for which payment has not been received, Wei says.
Many of China's companies, especially exporters, were caught off guard by the 2 per cent appreciation of the renminbi announced on July 21.
Their losses, although not fatal, expose the lack of foresight of some domestic companies in coping with changes in the business environment.
Although experts believe the 2 per cent appreciation won't deal a heavy blow to most enterprises, they must learn how to cope with new realities.
Even for companies benefiting from the appreciation, such as importers and firms with large amounts of foreign debt, the new system poses challenge on how to handle uncertainties in exchange rates.
China abandoned its peg to the US dollar and moved to a managed floating-rate regime based on market supply and demand and with reference to a basket of currencies.
This marks the beginning of the reform of the renminbi exchange-rate mechanism, and requires enterprises to be more responsive to changes in the foreign-exchange market.
"It (the reform) was not unexpected," says Wu Changqi, professor at Guanghua School of Management, Peking University. "There was enough time for enterprises to get ready. If they are still unprepared, it's their problem."
More importantly, they should readjust their operation strategy - both short-term and long-term - to better suit the new system and avoid future risks.
In the short term, steps include speeding up foreign-exchange settlement, hedging on foreign-exchange rates, hiring talented people with a deep knowledge of the foreign-exchange market, and re-adjusting export prices.
In the long run, improving product competitiveness and management efficiency; and readjusting the industrial structure are the key, Wu says.
On the flip side of the renminbi reform, quick-witted players not only dodged possible losses but also reaped gains from the appreciation of currency.
Shanghai-based Sinochem International is a typical example.
Its secretary for the board of directors told Shanghai Securities News that through financial arrangements made earlier, the company had a gain equivalent to the annual profit of a small department in the firm. But he didn't elaborate what arrangements the company made.
Some exporters in Zhejiang Province had raised export prices as early as in May when negotiating for orders to be signed later this year, taking into consideration a possible renminbi appreciation.
Others, such as toy manufacturers in Guangdong Province adopted a different approach - they hedged on exchange rates through Hong Kong banks before the reform was made public.
According to a report in Economic Observer, they asked foreign clients to deposit money in Hong Kong banks and promised not to withdraw for a certain period, say six months to a year. The banks would remit the money according to a fixed rate at the agreed time regardless of changes in the renminbi foreign-exchange rate.
Big State traders have also been active.
"We have been hedging in the foreign-exchange market for a long time," says Li Dang, director and vice president of China General Technology (Group) Holding Ltd (Genertec). "But this tool cannot be applied to all businesses and we must take into consideration service charges."
Experts say the reform will unleash demand for financial products and services to help ward off risks.
Central bank Governor Zhou Xiaochuan told domestic banks last week to devise more financial products for the foreign-exchange market to enable enterprises to get used to the new rate regime.
He said that more derivatives will be developed to meet demands of enterprises, in particular foreign traders and companies making investment overseas.
However, hedging, in the eyes of Professor Wu, can only be a tool to solve short-term problems or help offset part of the losses.
"A more active response should be to readjust the industrial structure," he says.
Most enterprises can absorb the impact of the currency rise because of the advantage of inexpensive labour resources and secure export markets but they can't rely on it for long, he says.
His views are echoed by Li Mingxing, director of the international department of China Enterprise Confederation.
"The reform will be a catalyst for China's industrial restructuring," he says. "Companies can seize the opportunity to readjust their strategy and focus more on the development of high-tech and high-value-added products."
If the exchange-rate system had remained unchanged, he says, companies would not have had any impetus to improve their export structure, because exports of low value-added products, even at low prices, would still have been profitable.
Many enterprises have realized this. Hunan Textile Import and Export Corp, for example, has listed increasing exports of value-added products and speeding up the restructuring of its product mix as important counter-measures to the reform, according to website of the Ministry of Commerce.
However, most companies' immediate priority is to reduce losses; and raising export prices seems to be an inevitable choice.
"We will raise prices by 2 per cent for new orders," says Wei of the Yeliya Group. "Customers should be able to afford the price rise because our products are targeted at the high-end market."
Gu in Shaoxing also says she will negotiate with clients on price rises for new orders.
Another step taken by Gu to stop further losses is to ask foreign banks, which she believes to be more efficient, to speed up foreign-exchange settlement and ask clients to pay in time.
"I don't know when the currency will rise again," she says.
Experts say investing overseas might be one option for companies because the appreciation helps reduce costs for investment abroad.
Reports say some shoe manufacturers in eastern China are seriously contemplating moving some production lines to neighboring countries such as Viet Nam.
But Gu will adopt a different approach.
"I will shift part of the business to the domestic market," she says. "A combination of foreign and internal trade might help better control risks."
Todd Lee, a China veteran in economic forecast company Global Insight, tells China Business Weekly that he believes domestic companies will be able to cope with the changes.
"Domestic firms already have had experience dealing with something similar to a revaluation - the WTO entry that had China cutting tariffs aggressively and scrapping export-tax rebates - and the Chinese firms got through them just fine," he says.