China's Export-oriented Sme Exchange Rate Risk Research

Since July 21, 2005, the RMB exchange rate system gave up the single dollar peg mechanism and transferred into floating exchange rate system based on market supply and demand with reference to a basket of currencies. As a result, The RMB market-orientated process will intensify the volatility of RMB exchange rate and pose a substantial threat to export-oriented SMEs with relatively weak immunity to exchange rate risk.This paper reviews firstly the achievements contributed by export-oriented SMEs in term of export scale, product structure, and export destination. Nevertheless, various challenges followed at this stage such as demand shrinkage, financing crunch, low product added value, especially the exchange rate risk which, with deepening reform of RMB exchange rate system and financial turmoil, has become of no negligible factor for SME in international trade.The following part analyses the exchange rate risk situation faced by export-oriented SMEs, respectively in short and long term and later based on the ARCH model inputted with the daily data exchange rate of RMB to Dollar from Jan 4, 2007 to March 9, 2009, make an empirical research on volatility effect of RMB to Dollar, with a result indicating that significant ARCH effect does exist.Lastly through the contrast between the large-sized and small-and medium sized enterprises, this part, combining the current exchange risk situation, proposes the focused measures to cope with the exchange rate risk in view of features of export-oriented SMEs.