Chinese Enterprises Alert against Exchange Rate Risks

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Last updated at: (Beijing Time) Sunday, June 08, 2003

Chinese Enterprises Alert against Exchange Rate Risks

As the world foreign exchange market becomes more volatile, Chinese import and export enterprises are increasingly aware of possible exchange rates risks.

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As the world foreign exchange market becomes more volatile, Chinese import and export enterprises are increasingly aware of possible exchange rates risks.

In early April, an import and export company in Shanghai placed an order for electronic communications equipment worth 100 million euros with a settlement date on May 21.

To hedge against a possible change in exchange rates, the company signed a forward transaction agreement on Apr. 21. When the contract matured, the company had saved nearly 70 million yuan(8.43 million US dollars).

"I never expect the deal would save us so much money. It really pays off to use such financial instruments to avoid possible risks," the company owner said, asking not to be identified.

As China is increasingly involved with the global market, more domestic import and export companies are learning to follow international practices to secure their interests and guard against losses.

Statistics released by the Industrial and Commercial Bank of China (ICBC), where Renminbi forward transaction were officially approved from April 1, show 55.42 million US dollars changed hands in May.

Meanwhile, information from all banks in China authorized to handle the business -- the Bank of China, the ICBC, the China Construction Bank and the Agricultural Bank of China -- shows a rapid rise in forward Renminbi transactions against the euro and a slight slow-down in forward Renminbi transactions against the US dollar.

Analysts believe the trend could be attributed to drastic fluctuations in the global foreign exchange market where most foreign currencies including the euro, the Japanese yen and the British pound have gained against a weaker US dollar.

Foreign exchange trader Zhu Bingling, of the BOC Shanghai branch, said financial risks control had become an issue of common concern of many import and export companies in China.

Apart from forward Renminbi transactions, a variety of financial tools, including future exchange and exchange rate conversion, have also shown brisk market demand, Zhu said.

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