On October 23rd, at the 2018 China (Hangzhou) International E-commerce Expo - Cross border E-commerce Forum, Zhang Yanbai, Executive Director of Haiyunhui, delivered a keynote speech titled "How to Help Cross border E-commerce Meet the Challenges of the New Exchange Rate Era".

He pointed out that "exchange rate risk" is mainly divided into three major risks: trading, economic, and accounting risks. Enterprises mainly provide services for exchange rate risk management through banks. It takes at least six months for banks to actually start trading with customers from the first meeting to the end. The lengthy process and numerous documents involved during this period are unbearable for ordinary enterprises. So many companies can only choose to "run naked" in the era of exchange rates, and may face the risk of huge losses in the end.

It is reported that the theme of this conference is "New Services, New Opportunities, and New Challenges", focusing on empowering cross-border trade, cross-border finance, new models of international logistics, digital marketing, and opportunities, challenges, and response strategies in the era of compliant operations. Further optimize the cross-border e-commerce ecosystem, drive the internationalization transformation of traditional advantageous industries, and improve the efficiency of cross-border sellers. Enterprises such as UMKA, PingPong, and Lianlian Payment attended the meeting.

Kind reminder: This article is a preliminary review of shorthand notes, ensuring that the guests on site have the original intention and have not been edited or made any mistakes. We apologize for any inconvenience caused.

The following is a transcript of the conference speech:

Zhang Yanbai: Thank you very much for the introduction. Exchange rate is a topic of great concern this year. I have shown a chart of the trend of the RMB exchange rate here. As you can see, the great challenge faced by cross-border e-commerce is the marketization and internationalization of the RMB exchange rate, which is particularly evident in the market this year. So how to help enterprises solve the problem of exchange rate risk and better manage exchange rate risk has become the original intention of our Haiyunhui Company.

Let's first talk about the concept of "exchange rate risk", which is essentially three major risks: trading, economic, and accounting risks. The most important concern for cross-border e-commerce is still transaction risk, whether it is 650 yuan or 700 yuan for goods worth 100 yuan in US dollars to be received. Because it affects a company's cash flow, costs, and profits. The latter two risks are not as significant yet. Accounting risk is that you have a large investment overseas, investing one million US dollars, but long-term equity investments will generate fluctuations in accounting gains and losses due to holding foreign currency assets and accounting statements denominated in local currency each year, which may not necessarily generate cash flow. Economic risks may arise when some enterprises export, such as large enterprises going abroad to obtain projects. If you consider too much exchange rate risk in the quoted price, the price will be lower than that of competitors, leading to the loss of competitiveness of the goods. Exchange rate risk is still a topic of great concern to everyone, and how to crack and respond is the problem that our company wants to help enterprises solve.

This is the fluctuation of the RMB exchange rate this year. In the first half of the year, the RMB suddenly appreciated from 6.6 to 6.7, to around 6.3 and 6.4. However, in May and June, the trend turned around, with a significant depreciation. Yesterday, it reached a new low at 6.94, with a depreciation rate of 11% in 100 days. The export profit margin of Chinese foreign trade enterprises ranges from 3% to 5%, and the exchange rate fluctuates by 11%. At the beginning of the year, the enterprise was considered a profitable project, but later it may be a loss making project. How to manage exchange rate risk well is an urgent need to solve all cross-border e-commerce problems.

Another issue discovered is that small and medium-sized enterprises face the greatest challenge when facing exchange rate risks. Enterprises engage in exchange rate risk management. Traditionally, only banks provide services. Banks typically provide derivative services, and it takes at least six months for banks to actually start trading with customers from the first meeting. There are a series of KYC, account opening, credit granting, legal documents in between, and they may even tell you not to do so. So many companies can only "run naked" in the era of exchange rates, and may face huge losses in the end.

What I want to share with entrepreneurs is that there are some misconceptions in exchange rate management. Many entrepreneurs may not do any exchange rate risk management because they feel that using derivative instruments and forward locking is speculation. This concept is incorrect. Your core is still to focus on your main business. The real economy should focus on building core competitiveness, whether in manufacturing, trade, or circulation industries. If you do not manage exchange rate risk, it is to some extent speculation, betting on whether the fluctuation of the RMB exchange rate is beneficial to you.

Some financial personnel are also under great pressure, and as long as they manage exchange rate risk, they must make profits, which is also a misconception. Our goal in risk management is to turn uncertainty into certainty in risk control, and risk into cost, without taking the initiative to bear risks. Some of our listed companies are also manufacturing companies in the same industry, with profits of several billion yuan and financial statements of several billion yuan. However, the annual exchange gains and losses are between ten to two billion yuan. Therefore, it is difficult to determine the essence of a company when evaluating whether it is a manufacturing company or a hedge fund. Moreover, there are also some studies in the capital market. If financial risks can be well controlled and managed within a certain range, the company's stock price will have a 10% to 20% premium, and the capital market will pay for the excellent management of the enterprise.

What differentiated competitiveness does Haiyun Huineng bring to enterprises? Haiyunhui itself is a subsidiary of Haier Financial Holdings, and the core backbone of our employees are also from the trading room. Give some simple examples, such as summarizing some local foreign exchange policies globally, in Africa, and Europe, such as how to issue the West African franc currency when encountering it in Africa before; The Egyptian pound issue encountered in Egypt, where money can enter but cannot exit, and how to lock in the Mexican peso. Another two years ago, Russian factories also encountered a significant appreciation and depreciation of the ruble. How can companies respond.

In the process of promoting business globalization, we have accumulated rich experience in foreign exchange management, including dealing with local currency risks, including local fund financing, cross-border fund flows, global cash pool management, etc. We have a complete set of solutions and guidance accumulated over the years. We very much hope to empower these experiences and knowledge to cross-border e-commerce platforms, so that they can better cope with exchange rate risks in different countries, Foreign management policies.

Here is how to carry out risk avoidance. The most important thing is to assess the magnitude of the risk, and then establish a good authorization system. The company's financial personnel should be able to obtain sufficient authorization, who is responsible for transactions, who is responsible for payments, and who is responsible for accounting. A complete system is necessary to better manage the exchange rate risk of the enterprise.

Our information is very valuable, especially the forward exchange rate, which is not always available on ordinary websites. Although the price of our official account is real-time every day, enterprises can see the current price of the RMB exchange rate and the price one year later. There will be a difference between the price one month later and the current price of the RMB exchange rate, and there will be our interest rate in dollars, What is the real-time price now.

These price displays are still very valuable because I am also from a bank. A few years ago, solar energy companies did a lot of forward exchange settlements, and their prices were in euros at that time, with a lot of profits. However, the company did not know the forward profits, and for some reasons, the contract was terminated due to different financial instruments used by the company. The bank was asked if the contract could be terminated and no payment was made. The company made a profit of 2 million euros on the contract, and the bank told him that you can terminate the contract without a fine. The company abandoned the field of 2 million euros, indicating that you do not understand this field and will be eaten away by competitors. Perhaps you are grateful that the bank helped him, so we still need to disclose this financial information and market information to everyone, so that everyone can better manage their own situation in the real exchange rate risk.

This is an online exchange rate risk management system that we are developing with our partners, and we have already implemented a project with Dunhuang. We hope to empower small and medium-sized enterprises with these exchange rate risk management capabilities.

The immediate effect is that there are thousands of small sellers on some cross-border e-commerce platforms. We can take out their orders and transaction information in the system. This system can help cross-border e-commerce merchants figure out how much exchange rate risk exposure they face, RMB fluctuations of 1% to 2%, and the profit and loss of enterprises. One click transactions can be made nearby, This way, cross-border e-commerce merchants can lock in exchange rate risk at any time, which is a project we are developing and will soon be launched.

This is a product that we are developing with a price locked annual exchange rate. There are also some forward products. This is where we can provide you with some advice on exchange rate risk management. Because companies may face many choices of financial instruments when facing exchange rate risks and do not know how to make better decisions, we can customize their foreign exchange locking plans according to their situation.

This plan is also a recently implemented plan, which is a one-stop financial service and also a cooperation with cross-border e-commerce. We can provide USD loans for its exports. First, we can help enterprises make USD loans, and then we can lock in the USD to RMB forward. Exporting enterprises can quickly convert their cash flow.

Another case shared is that in the past two years, many companies have issued bonds overseas in the currency of the US dollar, with the purpose of using the Chinese yuan. The issuing companies face the risk of the exchange rate between the US dollar and the Chinese yuan and need to lock it in. At present, there are two markets for the RMB exchange rate, domestic and overseas, but there is a significant difference in liquidity between the two markets, especially for five-year US dollar RMB forwards. For example, when we buy five-year US dollar RMB forwards in the domestic market, there is no quoted price in the market, only a one-year price. We will use the overseas USDCNH market, which has five-year forward quotes. In this case, we will first use the overseas market to lock in the RMB exchange rate, and then transfer the overseas transactions to the domestic market for re locking after a period of time. This solves the problem of the company's five-year foreign exchange lock. So the value of Haiyunhui is to help companies fully utilize the two overseas and domestic markets, find the optimal exchange rate risk management plan, and help enterprises minimize exchange rate risk.

If you have any needs, please feel free to contact us at any time. We are willing to provide you with more one-stop cross-border financial services.