Foreign exchange risk management is a decisive factor for cross border e-commerce (CBEC) success, says Zheng Xiaorong 郑晓嵘 KVB Kunlun International Trade director. Large wholesale CBEC exporters bear the brunt of Chinese currency appreciation, reports 21st Century Economy.
The C¥–US$ central parity rate went up for the ninth time to 6.5269 on 7 September, the highest since May 2016.
The 5 percent appreciation has squeezed profit margins of CBEC to between 5 and 10 percent, says Li Zhiqiang 李志强 Shenzhen Youkeshu Technology CEO, noting
- companies dealing with bulk commodities will be greatly affected by foreign exchange risk
- such risk is relatively controllable for companies taking small orders
- direct mail of customised products and products where China has comparative advantages in manufacturing, like electronics or robotic vacuums, is barely affected
To counter risk, Li suggests CBEC businesses
- increase their bargaining power
- control settlement of exchange time in their favour
- work with overseas suppliers to reduce costs of foreign exchange through overseas direct purchase
- seek assistance from financial institutions
Zheng advices financial institutions working with CBEC businesses to
- help manage foreign exchange positioning and exposure
- help identify the scale of losses should they happen
- provide risk-aversion portfolios
CBEC B2B and B2C now make up for a quarter of foreign trade, compared to only 10 percent in 2012. The number is expected to reach 40 percent by 2020, says Ouyang Cheng 欧阳澄 AliResearch Cross-Border E-commerce Research Centre director.