RMB Appreciation, China's Textile Companies May Face Bankruptcy.

If RMB An appreciation of 5% against the US dollar will result in a small profit for the textile industry and half of China's textile companies will be bankrupt.

Textile companies in China profit In 3-5%, the appreciation of the renminbi, rising raw material prices and labor costs have squeezed the profits of the textile industry, China Daily quoted Gao Yong, vice chairman of the China Textile Industry Association as saying on Tuesday.

In March, the Chinese government carried out the RMB stress test. The result showed that if the RMB appreciated by 1%, the space of the labor-intensive textile companies would be reduced by one percentage point, China Daily reported.

The sharp appreciation of the renminbi will cause millions of people to lose their jobs, the China Daily quoted the Ministry of Commerce as saying. textile industry More than 20 million employees are directly employed, and about 140 million people are related to cotton production.

In the 2005-2008 years, the exchange rate of RMB against the US dollar appreciated by 21%, which helped to drive up the price of China's textile products. Therefore, the price advantage of Chinese made textile products and Vietnam, Indonesia and other Southeast Asian countries disappeared, "said Zhang Bin, an analyst with the national securities certificate.

Supplement:

The global financial crisis in 2008 once slowed down the pace of exchange rate reform, narrowed the fluctuation of the RMB exchange rate, and even implemented the strategy of "pegging" the dollar in the past. Two years later, on the 19 th of this month, a spokesman for the people's Bank of China said: "according to the domestic and international economic and financial situation and the balance of payments in China, the central bank has decided to further promote the reform of the RMB exchange rate formation mechanism and enhance the RMB exchange rate flexibility." This marks a restarting of RMB exchange rate reform.

From the current point of view, the pace of RMB appreciation has been reopened, and the central parity of RMB against the US dollar has hit a new high of nearly 5 years after the central bank reiterated the second trading days after the reunification (22 this month). This has to arouse our concern about the development of the industry. At this stage, China's textile industry is in a critical period of increasing cost pressures and weak production and investment recovery. The revaluation of the RMB will undoubtedly bring greater negative impact on the industry. It is expected that the export recovery of China's textile and clothing products will slow down in the second half of the year.

Foreign exchange reform leads industry development concerns again

The renminbi has gone through the dual track system of 1981~1993, the single managed floating exchange rate system in 1994~1997, the actual dollar fixation system in 1998~2005, the reference basket exchange rate system in July of July 2005 ~2008, and the US dollar system in July 2008 June. All previous adjustments to the RMB exchange rate system have attracted wide attention both at home and abroad. On the 19 th of this month, the central bank announced that it will continue to push forward the reform of the exchange rate system, restore the elasticity of RMB exchange rate and revisit a basket of currencies.

This exchange reform emphasizes that we should adhere to the market supply and demand and adjust with reference to a basket of currencies to enhance the flexibility of RMB exchange rate. Of course, logically speaking, "enhancing the elasticity of RMB exchange rate" must include two-way upward adjustment and downward adjustment. However, judging from the current situation at home and abroad, the appreciation of RMB is expected to increase significantly. From the actual situation, after the announcement of the exchange rate reform, the pace of RMB appreciation has really taken off. According to relevant data, after the central bank reiterated the second trading days after the exchange reform (that is, 22 February), the central parity of RMB against the US dollar rose to 6.80 yuan, closing at 6.7980 yuan, setting a new high since July 2005, rising from 6.8275 on the 21 day to 6.7980 on 22 days. This has to arouse our concern about the recovery of the industry's exports.

The trend of RMB to us dollar intermediate price this year

Source: the people's Bank of China

Prior to our analysis, we have repeatedly pointed out that the RMB appreciation will further weaken the export competitiveness of the entire textile and garment industry, and accelerate international orders to Vietnam, India, Pakistan and other neighboring countries. Not only will China's textile export enterprises suffer losses from foreign exchange settlement, loss of profits, export orders, and other losses, it will also affect the ability of the industry to absorb social employment, and the domestic market competition situation of textile and garment products will also aggravate with the slow recovery of export.

Textile export recovery will slow down or slow down

At present, China's textile industry's export recovery rate is still relatively fast. According to China's customs data, in 2010 1~5 months, China's total exports of textiles and clothing totaled US $72 billion 205 million, an increase of 19.52% over the same period last year, and the cumulative export growth rate continued to accelerate in the past few months, of which textiles grew by 29.53% compared to the previous year, and clothing grew by 13.12% over the same period last year. However, judging from the reasons for the current growth of industrial exports and the pressure it faces, we believe that at present, industry exports are growing rapidly on the basis of low export base in the same period last year, and the rapid performance of their export recovery is not sustainable.

First of all, the demand power of the international market is not sustainable, and the real demand recovery has not yet been formed, and when will the replenishment power continue to become the industry's concern. Through the brutal inventory process during the financial crisis, the inventory compensation is inevitable in the process of economic recovery. Strong demand for inventory compensation in developed economies such as the US and Europe has become an important driving force for the export of China's textile industry at this stage. According to the US Department of commerce data, in 2010 April, the US business inventories continued to grow by 0.39%, while manufacturing inventories grew by 0.51%. However, both the growth rate of commercial inventories and the growth rate of manufacturing inventories showed a slowing trend. At present, the demand for replenishment of commercial and industrial enterprises in developed economies is still continuing, and will continue to play a stimulating role in the export of China's textile and clothing products. However, with the gradual weakening of replenishment power in the international market, its positive pulling effect will continue to shrink. The European debt crisis, Japan's economy is still sluggish, and US retail data unexpectedly slipped in May, which has become an important concern for us when the real demand for the international market will resume.

Us business and manufacturing inventory sales ratio

Source: US Department of Commerce

Secondly, the pressure on the cost of raw materials is too high. Although some export products have partially released the excessive upward pressure on the price of raw materials through the way of raising product prices, the pressure brought about by the unsynchronized price transmission is very limited. According to the relevant data, by June 23rd, China's 328 grade domestic cotton has risen to 18089 yuan / ton, up 21.57% compared with the beginning of 2010. According to China's customs data, in April 2010, the price of textile yarn exported by China increased by 5.88% compared with January this year, and the price of textile fabrics increased by 7.77% compared with January this year. It can be seen that the cost pressure problem of textile enterprises is very prominent at present.

In addition, the current industry development is also faced with problems such as shortage of labor resources, rapid increase in labor costs, rising fuel power costs, and many uncertainties in the international trade environment. At the moment, we have restarted the RMB exchange rate reform, which will undoubtedly cast a shadow over the prospects for the recovery of the industry's exports. It is expected that the export recovery of China's textile and clothing products will slow down in the second half of the year.

Here, we must remind the vast majority of textile exporting enterprises to diversify their export markets, speed up the pace of product innovation and development, actively increase the added value of products, and choose financial instruments to avoid trade risk, so as to guard against the consequent trade risks.