At the beginning of the new year, the RMB has caused a bloody storm in the exchange rate market.
In the second half of 2016, the exchange rate of RMB against the US dollar was in a downward trend. On December 15, after the Federal Reserve raised interest rates, the exchange rate of RMB against the US dollar plummeted, even approaching 7.0. As the RMB continued to decline, on January 4, 2017, the offshore RMB exchange rate surged, with an intraday increase of more than 700 basis points. It continued to kill short sellers non-stop the next day, once soaring to 6.7815, which was 6.9872 away from the recent high. More than 2,000 basis points.
What impact will changes in exchange rates have on the textile industry?
The most obvious, from the direct effect point of view, because textile exports are generally settled in US dollars, the lower the exchange rate of RMB against the US dollar, the more money the textile foreign trade companies will earn while the price of payment remains unchanged. . During the interview, many companies said that the sharp decline in the RMB exchange rate since December has indeed allowed them to gain more profits. But at the same time, some companies said that although the decline in the RMB exchange rate is very beneficial to the export of their products, they do not want the RMB exchange rate to continue to fall like it did in December (Yangma helped them meet their expectations). This is a bit strange. Obviously, the lower the exchange rate, the better for exports. Why don’t some foreign trade companies not want the exchange rate to keep falling?
First of all, the most obvious point is the issue of raw material prices. Take the polyester filament that has skyrocketed some time ago as an example. Its main raw materials are purified terephthalic acid (PTA) and ethylene glycol (MEG). The upstream of PTA is PX, and the ultimate source is petroleum. From January to October 2016, my country’s MEG import volume was 6.1033 million tons, while PX import volume was 10.0878 million tons. Although domestic production capacity of bulk raw materials has been continuously increasing in the past two years, due to the increasing demand, the pattern of partial reliance on imports of bulk raw materials will not change in the short term.
When the RMB exchange rate falls, the price of raw materials purchased by chemical fiber spinning companies increases relatively. Behind the surge in raw materials in December is the falling RMB exchange rate. The price of raw materials is also a factor that directly affects the profit of the order.
Next is the more macro aspect. On the evening of December 28, 2016, there were rumors that the RMB had “broken 7”, which was finally confirmed to be an error – that night, the RMB exchange rate had been stable between 6.950-6.966, and the central bank also specifically refuted the rumors.
The stability of the exchange rate is directly related to the stability of economic development. Large fluctuations in the exchange rate – whether it is a big rise or a big fall, will have an impact on the current economic situation. Our country is at a critical moment of slowing economic growth and industrial transformation and upgrading. For the textile industry, it is also in a period of eliminating backward production capacity and transforming products from low added value to high added value. The decline in the RMB exchange rate and the market’s bearish view on the RMB are, to a certain extent, bearish on China’s future economy.
Although economic growth has slowed down, overall, China’s economy is still in a stable state. Under such circumstances, huge fluctuations in exchange rates are abnormal. China’s market size is still very different from that of Southeast Asian countries during the 1997 Asian financial crisis. The intervention of the central bank makes it difficult for the capital market to have a huge impact on exchange rate fluctuations.
Although changes in exchange rates affect the profits of foreign trade companies, they only affect the amount of profits, which is hardly related to life and death. Under the intervention of the state, it is difficult for the RMB exchange rate to experience particularly huge fluctuations, and the foreign trade situation has been relatively stable for a long time. To make iron, you need to be strong. For textile workers, the most important thing is to make your own products well.
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