The Influence Of The Rmb Exchange Rate Change On The Lactic Acid Industry In Our Country

Since the exchange rate reform in July,2005, RMB has been appreciated more than30%against USD Dollar. China restarted the reform in June,2010, and RMB exchangerate has entered a new round of appreciation against USD Dollar. While RMB effectiveexchange rate performed appreciation since2005and then depreciated from2009. Theexchange rate is determined by supply and demand situation of foreign exchange market,which reflects price of one country’s currency through foreign currency; the fluctuationof RMB exchange rate will impose profound effects on our country’s import and exportactivities, especially for those export enterprises.In recent years, lactic acid industry of China has developed a lot as a sub-industry ofChemical. Lactic acid is an important bio-chemical product, which is vastly used in food,pharmaceutical, brewing industries, etc. China’s lactic acid industry started since1930sand now one third of our country’s lactic acid products are exported to North America,Europe, South-east Asia, etc. The paper reviews some classical theories of exchange rate,and analyzes trend of RMB since2005and current development of China’s lactic acidindustry; and evaluates the effects on costs, volume and price of export, industry chain ofthis industry caused by exchange rate fluctuation; then the paper introduces a case(Henan Jindan Lactic Acid Co., Ltd) to analyze some specific effects.The paper believes that the RMB effective exchange rate depreciation will causerise in price of corn, which is the main raw material for lactic acid production; at thesame time, it will lead to cost-push inflation, which will induce the price increase ofenergy, such as water, electricity and gas. All of these will make cost of lactic acid up; atthe point of elasticity, lactic acid product has a small elasticity of demand and a largeelasticity of supply for export, so when RMB appreciates, export will increase a lot andwhen it depreciates, export will not be affected so much. In the long-term perspective,the RMB exchange rate fluctuation is helpful for lactic acid enterprises to improveproduct competitive strength and promote industry update.At last the paper provides some suggestions as for exchange rate risk of ourcountry’s lactic acid enterprises confronting. Firstly, the enterprise should learn to use various hedging instruments to avoid exchange rate risk, and pay attention to improveproduct quality and technology creation; they could introduce the concept of recyclingeconomy to lower cost and create new cost advantages; Meanwhile the governmentshould give more support, such as policy and tax preferences, to those lactic acidenterprises which are most small and mediate sized enterprises; and help them build uptheir own brand and competitiveness in the international market.