Study Of Smes In China Exchange Rate Risk Management Strategy

Great risks are Chinese small-to-medium size businesses facing at present. Chinese RMB is experiencing a more and more frequent exchange rate, and its rise is getting ever more considerable as well. The frequent wavering of exchange rates not only causes loss in exchange transactions on the part of these small-to-medium size businesses, but may lead to their bankruptcy in some extreme cases. Under current circumstances, it is of eminent importance to study and give suggestions on how these businesses cope with risks from exchange rates. Small-to-medium size businesses are a major force in the growth of Chinese economy, playing an essential role in aspects such as vitalizing market, increasing employment opportunities, encouraging industrial creations, and etc. If deficiency in exchange rates management causes the lowering of profit or even bankruptcy, it will prominently affect the employment rates and social stability and development of China. Whereas contemporarily, Chinese small-to-medium size businesses are extraordinarily limited in their exchange rates management methods, lagging far behind their counterparts in western developed countries.With many years' working experience in mortgage lending and careful study of practical situations of many Chinese small-to-medium size businesses, especially features of businesses of this category in Shenzhen, the author of this article starts with the cause and effects of foreign exchange risks, depicting a clear picture of the impact of exchange rates risks on Chinese small-to-medium size businesses. A detailed illustration of the current situation and challenges faced by small-to-medium size businesses in their risk management of exchange rates is given, and thereby suggestions of both short-term and long-term strategies for risk management of exchange rates are brought forth concerning small-to-medium size businesses in manufacture and service. The short-term strategies include the cut of production cost, improved account settling, trading financing, choice of multi-priced currency and usage of financial derivatives. The long-term strategies include improving products surplus values and technique proportion, accelerating industry structure reform, creating multi-market and increasing foreign investment. With the help of advanced experience from the small-to-medium size businesses in western developed countries, the author points out the explanations for the deficiency of Chinese economy in the development of financial derivatives and overseas investment. As a conclusion, in light of the developing obstacles and deficiency causes discussed earlier, relevant recommendations in management and policies are presented so as to enhance the abilities of Chinese small-to-medium size businesses in risk management of exchange rates.