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The shipbuilding industry should upgrade the measures against the exchange rate risk to a strategic height.

Date:2011年1月21日 14:48

On the last day of 2010, RMB exchange rate to 1 U.S. dollar was ¥6.6227. The appreciation of RMB against U.S. dollar was more than 3% in 2010. In 2011, RMB exchange rate kept still a rising momentum. The experts agreed generally that China would face a bigger upward pressure on RMB this year. The shipbuilding industry should prepare to cope with a severe test once again.

The shipbuilding industry in China is a typical export-oriented industry.  Shipbuilding contracts - including the contracts on ocean going ships from domestic ship owners are settled in U.S. dollars in general. Additionally, the payment is divided into five installments in longer delivery period. Once RMB against U.S. dollars is appreciated too much, the shipbuilding industry will face an enormous exchange rate loss. As Mr. Li Yanqing, Deputy Director of China Ship Information Center introduced, in 2010, if the statistical data from Clarkson Research Services Ltd as a reference, assuming the first payment ratio reached 70% on the contracts signed before the international financial crisis; the first payment ratio was 20% after the crisis; the shipbuilders suffered 3% loss on the orders signed before the reform of exchange rate formation mechanism due to RMB appreciation; the shipbuilders suffered 1.5% loss on the orders signed after the exchange rate reform due to RMB appreciation and other factors calculated, the shipbuilding enterprises in China suffered the loss of ¥8000 million due to RMB appreciation, in which: the invisible loss on the orders at hand was ¥7000 million and the loss of the ships handed over was ¥1000 million.

At the present era of high cost and low price of ship, such huge exchange rate loss is difficult to bear by ship enterprises. RMB had a rapid appreciation between 2007~2008 and risen by more than 9% in one year. At that time, the ship enterprise took the advantages of seller's market and tactical countermeasures to overcome finally the shock waves caused by the appreciation of RMB, such as: increasing the proportion of first payment, early foreign exchange settlement, locking the temporary factors such as raw material price etc. However, after the outbreak of the international financial crisis, the ship market began to turn to buyer's market, the raw material price rose sharply. The measures against the risk taken by the ship enterprises previously are now difficult to work. One issue worried more is that RMB appreciation this year is expected to exceed the last year under the influence of the political and economic situation at home and abroad. China's shipbuilding industry will face a more severe challenge. The experts said, if the ship enterprises received the orders according to 5% of the profit margin last year, once RMB exchange rate against U.S. dollars is lower than 5.99 at the delivery time of the ship, the ship enterprises will suffer a loss if they do not take efficient measures. 

Actually, the shipbuilding industry in Japan and South Korea all suffered the difficulties and big losses on the sharp appreciation of the currency at the rapid development period. After the pain of currency appreciation, the shipbuilders in Japan and South Korea regarded the exchange rate risk as a major campaign, and took the strategic measures to decide the industry trend, for example, the government increased subsidies; encouraged domestic ship owners on shipbuilding; improved production efficiency; promoted industrial upgrading and so on. When these measures avoided effectively exchange rate risk, they also enhanced greatly the international competitiveness of Japanese and South Korean shipbuilding enterprises.

Facing a bigger upward pressure on RMB in future, China's shipbuilding enterprises should take the initiative to act; explore brand new strategy; prepare long-term and strategic measures; follow the example of Japan and South Korea to mobilize actively the whole industry ability to deal with exchange rate risk. The experts recommend, first, the relevant government departments should formulate relevant policies to encourage ship enterprises to increase R & D investment; to promote the optimization and upgrading of products; to hedge exchange rate risk by building higher profit ships; to promote the financial reform; to create conditions for the shipping enterprises to realize RMB settlement or multi- currencies settlement. Secondly, China's shipbuilding enterprises still has a big gap compared with the international advanced shipbuilding enterprises in the shipbuilding efficiency, the utilization ratio of steel, high value ship development and construction etc.. Reducing the gap is the fundamental strategy to resist exchange rate risks. China's shipbuilding enterprises should find actively the internal potential to reduce production cost; to improve labor productivity; to promote the upgrading of product structure. The pressure of RMB appreciation is changed into industrial upgrading power. Finally, the professional level of the financial institutions in our country engaged in ship financing business is very low. The financial instruments to guard against exchange rate risks are serious deficient. The financial institutions in China cannot provide "protection umbrella" to the shipping enterprises in currency appreciation as the financial institutions did in Japan and South Korea. Therefore, the financial institutions and the ship enterprises should make use of the strategic alliance relation established continuously at present, established actively the effective strategy and resisted together to the risk of RMB's appreciation.

TypeInfo: Industry news

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