The depreciation of the RMB is approaching the “7” mark, and textile companies admit that it is a good thing in the short term
According to new data from the China Foreign Exchange Trading Center, the central parity rate of the RMB against the US dollar was reported at 6.8904 on November 23, which was higher than the previous day. It fell 125 basis points on the trading day. Experts say the short-term rebound in the RMB exchange rate is expected to be limited.
Industry insiders analyze that the spot exchange rate of RMB against the U.S. dollar has fallen sharply. Listed companies in the fabric workwear category that mainly settle in U.S. dollars and have a large proportion of export business are expected to usher in periodic benefits.
The fabric industry benefits from the depreciation of the RMB
GF Securities released a research report saying: “The depreciation of the RMB will help enhance the competitiveness of enterprises’ export products, enable enterprises to obtain more orders, and drive the growth of exports.”
GF Securities believes that to a certain extent, it will help delay the outflow of orders in the textile and clothing industry due to rising domestic labor, environmental and other production costs in recent years. The growth rate of export value continues to slow down, and even shows a negative growth trend.
Affected by the appreciation of the RMB and rising labor and raw material costs, the competitiveness of my country’s fabric workwear industry in major markets has been continuously weakened in recent years, and the export volume of fabric workwear has declined year-on-year.
In the first three quarters of 2016, the U.S. economy gradually recovered, but the market was still in a sluggish state. According to new statistics from the General Administration of Customs of China, in October 2016, my country’s exports of fabric workwear were US$21.46 billion, a month-on-month decrease of 5.73% and a year-on-year decrease of 9.28%. Among them, the export value of fabric products (including fabric yarn, fabrics and products) was US$8.598 billion, a year-on-year decrease of 6.64%; the export value of workwear (including work clothes and clothing accessories) was US$12.862 billion, a year-on-year decrease of 10.96%.
From January to October 2016, my country’s cumulative export volume of fabric products for workwear was US$222.561 billion, a year-on-year decrease of 5.31%, of which the cumulative export volume of fabric products was US$88.132 billion, a year-on-year decrease of 3.25%; The cumulative export value of workwear was US$134.429 billion, a year-on-year decrease of 6.62%.
Although it is difficult for demand in overseas developed markets, especially the European market, to improve in the short term, industry insiders believe that for every 1% depreciation of the RMB exchange rate against the US dollar, the sales profit margin of the fabric workwear industry will increase by 2%. to 6%. Moreover, my country’s fabric workwear industry ranks first in scale, and exchange rate changes have a huge impact on the industry.
Some people in the industry pointed out that the fabric workwear industry is highly dependent on exports. On the one hand, the depreciation of the RMB will help companies reduce costs and improve product competitiveness. The company will get more orders, and on the other hand, the company will get more orders. On the one hand, it is beneficial to export-oriented enterprises to obtain exchange gains. The depreciation of the RMB means that the purchasing power of foreign currencies has increased, which will further stimulate consumption and be beneficial to the export of fabric products.
A person from a listed company in the export-oriented fabric industry told reporters that during the period of RMB depreciation, it is really good for the fabric industry, but this is only a short-term impact. In the long term, we still need to wait and see.
“Since the company is facing a niche market, it only accepts bulk orders, usually once every six months. Therefore, the depreciation of the RMB will benefit the company in the short term, but whether it will benefit the company in the long term remains to be seen. Let’s see the trend in the future.” A person from the above-mentioned listed company in the fabric industry told reporters that if the RMB depreciates for a long time, it will naturally be a long-term benefit, but if it is only short-term, the impact on the company’s performance will not be obvious.
Some analysts pointed out that since orders from overseas customers are placed in advance and the letters of credit issued by customers are usually settled within 30 days or 90 days, short-term exchange rate fluctuations will not be able to increase the income of export enterprises. There will be obvious changes. The key is to pay attention to the next exchange rate changes. If the exchange rate changes continue, orders and quotations will be affected. Export companies should start from the site of exchange rate preservation and choose to make forward foreign exchange settlement and sales in banks. Or businesses such as RMB options to avoid potential risks caused by exchange rate fluctuations.
Other analysts suggest that companies that import raw materials from Europe and the United States can postpone purchases from foreign suppliers and check the exchange rate before making a move; or ask for a deferred payment. If they can discuss it with the exporter, they can agree to postpone it. The delivery date is equivalent to delayed payment.
Waiting to see how the international market will react in the future
It is generally believed in the industry that the depreciation of the RMB will benefit the export business, especially fabrics with a high proportion of business settled in US dollars.�As a leading workwear company, on the one hand, it helps the company increase its orders. On the other hand, most companies settle in US dollars, and they can also obtain certain exchange gains under the depreciation of the RMB.
However, some people from listed companies said that although downward changes in exchange rates are clearly beneficial to the industry, most companies have previously adopted a series of means to hedge exchange rate risks, such as import hedging, US dollar financing and forward foreign exchange. Transactions, etc., the degree of positive impact on corporate performance must be analyzed on a case-by-case basis.
Another person from a listed company that specializes in export-oriented fabric workwear told reporters that although the depreciation of the RMB is good for fabric workwear export companies, because the RMB is related to the international market, We still need to see how the international market responds in the future.
At present, the market has two opinions about the future trend of the RMB. One is that in the long run, the RMB will not continue to depreciate; the other is that the RMB will continue to depreciate.
Statistics show that from November 4 to November 21, the central parity rate of the RMB against the US dollar suffered 12 consecutive declines, with a cumulative depreciation of 1,494 basis points, and a depreciation rate of 2.21%. Although on November 22 There was a brief rebound, but it fell again on November 23. Some experts believe that there will still be depreciation pressure on the RMB against the US dollar in the short term, but in the long term, China’s economic fundamentals do not support the long-term depreciation of the RMB, and the country’s large foreign exchange reserves will also provide support for the long-term strength of the RMB.
Yu Yongding, a member of the Chinese Academy of Social Sciences, recently said that it is difficult for a country like China to depreciate its exchange rate significantly.
However, Allanvon Mehren, chief analyst at Danske Bank, said that it is expected that the yuan will gradually depreciate; as China’s economic growth is under pressure, debt risks are rising, the Federal Reserve is restarting interest rate increases, and foreign direct investment (FDI) There is no longer a net inflow, putting pressure on the yuan.
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