This year， with the increasing cost for domestic labor and raw materials， the enterprises particularly the small-andmedium-sized (SMEs) were through a much tougher time. When negotiating with their foreign counterparts， Chinese exporters have to take into account the exchange rate fluctuations in three months. As many foreign clients are reluctant to accept forward exchange rates， the business has to be conducted by current exchange rates. The domestic enterprises have no way to withstand losses incurred by fluctuations of exchange rates， which have made them begin to lose superiorities in terms of price.Since the reform reinitiated last year， the RMB exchange rate against the US dollar has climbed to nearly 6%， which devours most SMEs’ all meager profit of around 3%~4%. The pressure of soaring prices for domestic raw materials， surging labor cost and an upward RMB makes it clear that export-led enterprises are losing the lion’s share. According to statistics from the Ministry of Commerce， Chinese exporters merely registered an average profit rate of 1.47% in 2010， lower than that of the industrial enterprises; worse still， during the first two months of 2011， the profit rate of exports further plummeted to 1.44%. Studies initiated by the Ministry of Commerce on the key exportoriented provinces suggest that Chinese exporters can only withstand a RMB appreciation within 2%.In order to avoid losses incurred by fluctuating exchange rates， many enterprises had to receive the small and flexible short-term orders rather than long-term ones when they mainly negotiated with clients. A manager from a garment enterprise noticed that many factories in Jiangsu Province and Zhejiang Province he dealt with had a much poorer performance this year. “The main cause is that orders are diverting to low-cost areas. Many orders for garments have turned to Southeast Asia or Romania where the production cost is lower. Now， even for the orders from Europe， we also quote in the US dollar due to forward exchange rate risks. But expectations on exchange rate fluctuations make it quite difficult to offer a higher quotation. But， anyway as grabbing orders is the most import thing. Our profit has really been considerably diluted by various factors”. He said with worry.Since this year， the ever-fluctuating RMB exchange rate has affected the SMEs in Wenzhou， most of which are export-oriented with difficulties in management， which then hinders the Wenzhou national economy from developing fast. A survey sample of 44 small enterprises selected by the Wenzhou Branch of China Banking Regulatory Commission shows that fluctuating exchange rates have exerted great impact on the small enterprises in Wenzhou for management and financing. A stronger appreciation of RMB has directly shrinked the the sacle of Wenzhou’s exports.It is learned that every 1% increase in the RMB exchange rate imposes a loss of RMB 8 billion on the exporters in Guangdong Province. Statistics suggest that a 3% RMB appreciation will decrease the profit of enterprises that engaged in the production of household appliances， automobiles and mobile phones by 30%~50% in a short term， and many SMEs with weaker bargaining power will be reduced to be in the red. This year， as the price soared by nearly 20%， orders of many small- and medium-sized hardware enterprises have flown away. The accelerating appreciation of the RMB has eroded enterprises’ profit， which is a problem faced by the export-oriented SMEs in Wenzhou. Since the exchange rate reform， the RMB has appreciated by over 15% ， with over 4% in this single year， a sharp year-on-year rise. Compared with last year， enterprises now have to pay 20%~25% more for currency swap transactions. The most vulnerable fields of fluctuating exchange rates focused on the shoes， garment， lighter， glasses and electromechanical industries. And due to the weak self-quality of these enterprises， the impact on the small enterprises is more obvious in the terms of management and financing.The garment industry is the first that was affected by the blunt of the RMB appreciation. Statistics from the Wenzhou Foreign Trade and Economic Cooperation Bureau show that most garment exporters in Wenzhou merely reaped a profit of around 5%. Every 1% appreciation of the RMB divides up the 1% profit of the garment industry; 5%， 6%， or even more respectively of the shoes industry， lighting industry and other industries. Since this year， a minimum of 15% profit is slipping away from the export-led enterprises. Moreover， weaker consumption capacity resulting from a decline US economy has made the American clients ask for lower prices of imports， which imposed another pressure on the small enterprises in Wenzhou.As the sustainble appreciation of RMB has been putting great pressure on exporters in the past two years， many exporters expressed that most of their rivals had conceived counter measures—either to raise the quotation or to turn to a new client base. “For instance， exporters who did business with Americans are now turning to clients in Indonesia or Pakistan so as to mitigate risks caused by appreciation or to minimize losses of fluctuating exchange rates. When negotiating with clients， exports have to raise their quotation by considering the expectated appreciation. Key buyers with long-term orders are required by exporters to sign contracts specifying how to share risks of fluctuating exchange rates. In this way exporters will avoid risks of fluctuating exchange rates. Besides， when negotiating prices with clients， exporters’ taking the cost of an upward RMB into account in order to avoid risks to some degree.Both the US dollar and the euro are on the decline， while the RMB is gaining its power， which superficially is a good thing， but in fact the RMB is still to face the pressure for appreciation， said Xie Taifeng， Deputy Dean of the Finance School of the Capital University of Economics and Business. This will lead to a large influx of hot money， an increase in foreign exchange reserves and an imported inflation， all of which will force the RMB to keep appreciating， and thus a vicious cycle is taken shape.Owing to sluggish economies， the US and the EU， the two largest markets of China’s exporting destinations， will see a lower consumption level， which will inevitably impose a greater impact on the Chinese exports dominated by processing trade. Xie considered that the RMB appreciation has diverted the economic losses caused by the US debt crisis， while the soaring commodities prices， labor cost and raw materials price will make it more and more difficult for the domestic export-led SMEs because of the RMB appreciation.Now， China has the world’s largest foreign exchange reserves with the amount of US$3.2 trillion， in which is about an estimated two-thirds of U.S. dollar assets， which means that China’ holding US Treasury bonds have attained US$1.16 trillion. With the sustainable apprecation of RMB， China’s enormous dollar-denominated assets would be shrinking its book value. The internationalization of the RMB will be the only way out for China to step out of the dollar assets dilemma.The RMB internationalization will not only enable China to have Seigniorage revenues with a lower cost for international trade and financing， but also be of strategic significance to the entire Chinese economy， said Li Daokui， Member of the Monetary Policy Committee of the Central Bank when addressing the Summer Davos. The RMB to go global will make China as a leader rather than a follower for adjusting monetary policy， which will prepare China to skillfully address the international financial crisis and eventually make China become a significant economy in the world， said Li.However， the RMB to be internationalized is by no means a smooth process， as the risks to befall will pose a challenge to China’s economic structure and its management system. The RMB’s internationalization meant that the RMB would perform its monetary functions in more areas and domains， which would somehow impact the domestic monetary policies and inevitably raise the issue of opening up the capital account and the capital market， Xia Bin， Director of the Finance Institute of the Development Research Center of the State Council， pointed out in an essay. The key to lower risks lies in the marketization of the domestic financial sector.According to Xia， for a quicker regional integration， the RMB is encouraged to go global and needs to be converted freely abroad just as other convertible currencies， which can be used for a full range of business including deposits and loans， settlement， asset management， investment and hedging risks of fluctuating exchange rates. Thus， a large-scale market with a considerable trade volume will be achieved for the RMB. In the mean time， the overseas agencies and natural persons are supposed to share the benefits of China’s rapid economic growth through the RMB converting channels allowed by the Chinese government.However， the higher RMB exchange rates against the US dollar and the Euro have attracted the international concern and it has been widely rumored that the RMB has reaped the lion’s share in this year’s debt crisis; the RMB is even regarded as “the world’s third largest currency”， only second to the US dollar and the Euro， all of which were resolutely refuted by Xie Taifeng. RMB’s status in the international stage could not be achieved purely by subjective wishes， but by China’s economy， technology and finance power. Xie commented that the likelihood for the RMB to replace the US dollar in a short time was quite slim. China’s aggregate GDP has exceeded that of Japan， but it is in a large part contributed by a stronger RMB. Furthermore， China’s per capita GDP is much lower and its rapid economic development runs at the expense of the environment， which results in a poorquality GDP growth. Therefore， the status of the RMB after all depends on China’s strength.