After the central bank unexpectedly cut interest rates, the RMB depreciated rapidly from around 6.7. On August 24, data from the China Foreign Exchange Trading Center showed that the central parity rate of RMB against the US dollar was at 6.8388. The onshore RMB and offshore RMB exchange rates against the U.S. dollar were reported at 6.8351 and 6.8582 respectively, which were the lowest in the past two years and depreciated by approximately 7.5% compared with mid-April.
The exchange rate has always been an issue that foreign trade people are more concerned about, but this year because the market has been tepid, the devaluation of the RMB has not shown obvious benefits now. Foreign trade orders have a 2-3 month payback time, but If the exchange rate can maintain this trend, it will definitely be a good thing for foreign traders in the long run, both in terms of receiving orders and making profits.
Textile companies’ profits expand
This year, the textile market has been stuck in a “stagnant” situation. The market lacks the injection of good news, and companies are operating conservatively. The entire market is “not prosperous in the peak season and not weak in the off-season.” The sharp depreciation of the RMB this time is undoubtedly a “red envelope” for textile companies. According to calculations by China Silk City Network, for every 1% depreciation of the RMB exchange rate against the US dollar, the sales profit margin of the textile and apparel industry will increase by 2% to 6%, and the benefits of companies with a high export proportion will be more obvious.
What is the concept? On August 11, 10,000 US dollars could be exchanged for 67,000 yuan, but now it can be exchanged for about 68,300 yuan. In other words, you didn’t do anything, but $10,000 is an extra $1,000!
Will the RMB “break 7”?
Now the RMB exchange rate has vague intention of breaking through the 6.9 mark. Will the exchange rate break through 7? First of all, it is clear that there is no basis for the continued depreciation of the RMB against the U.S. dollar. However, in the short term, due to the rising expectations of a substantial interest rate hike by the Federal Reserve, it is entirely possible to “break 7” in August. After all, compared with the current price, it is only about 4%. .
But in the end, the trend of the RMB still depends on the form of foreign trade. For example, the rise in the RMB exchange rate in the fourth quarter of 2020 is because China has properly controlled the epidemic, the economy has recovered first, and society has resumed work earlier than other regions in the world, so it has become a slightly weaker economy in the world. As a result, a large number of international investors have poured into China. Therefore, whether the RMB breaks through “7” will still depend on the future trade situation.
Improve international competitiveness
The most heard thing in the first half of this year is that orders have been transferred to Southeast Asia. The competitiveness of China’s textiles seems to be gradually declining. The main reason is that costs have gradually increased, resulting in China’s textile prices no longer being “cheap”. Many partners have begun to set their sights on Southeast Asian countries such as Laos, Myanmar, and Vietnam to obtain cheaper items.
my country’s main competitor in Europe is Bangladesh, and its main competitor in the United States and Japan is Vietnam. These countries are also the main destination countries for my country’s textile exports. The weakening competitiveness of their downstream clothing exports will suppress the demand for my country’s textiles. The depreciation of the RMB will undoubtedly increase the competitiveness of my country’s textiles.
Problems caused by RMB devaluation:
1. Increase in import costs
In international trade, it is not only my country’s external exports. In the textile industry chain, many raw materials also need to be imported. Therefore, this will lead to an increase in the import costs of domestic enterprises. In the end, these cost pressures still fall on the heads of foreign trade people. The profits gained from exchange rate settlement have been compressed again.
2. Exchange rate fluctuations
Fluctuations in the exchange rate seem to allow companies to sit back and make money, but not every company can seize the time for foreign exchange settlement. Many companies say that because the current exchange rate against the US dollar fluctuates too much, and there is a lag in foreign exchange settlement, they are not ready for the settlement of foreign exchange. For the boss, he prefers that the exchange rate remains stable, otherwise he will have to be dumb and eat yellow lotus when settling foreign exchange.
Generally speaking, in a short period of time, the depreciation of the RMB will not bring significant incremental orders to enterprises, and profits will only be slightly improved. However, the competitiveness of China’s textile industry in the international market is bound to improve, and Peacock may be able to do so again. Will fly back.
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