RMB Exchange Rate "Breaking 7" To Ease The Pressure On Textile Enterprises?

In August 5th, the offshore and offshore RMB exchange rate fell to 7 points against the US dollar. The news reached micro-blog hot search list at the same time, and aroused heated debate in textile foreign trade enterprises.

In fact, after the reform in 2015, the exchange rate of the RMB against the US dollar has been hovering over the edge of 7 for many times, but every time there is no danger. The reason why "7" is so important is that it has become an important gateway to exchange rate. In fact, from a rational point of view, there is not much difference between 6.9 and 7.1 in the face of a rapidly changing market. But whether it breaks 7 in front of the psychological line seems to be related to the expectation of the whole market. Especially in the crucial time node of the Sino US trade war, the subsequent advantages and disadvantages of the depreciation of the RMB are highly concerned. What is the truth?

Export enterprises: the exchange rate "breaking 7" is good.

Since the Sino US trade war began in March 2018, the exchange rate of RMB against the US dollar has depreciated, breaking from 6.29 to the 6.98 pass in early November 2018, but then the appreciation mode was opened, and the offshore renminbi was 6.6715 in March 21, 2019. In July this year, the exchange rate of the US dollar against the RMB basically fluctuated between 6.85 and 6.89, but it never broke 7. In the morning of August 5th, offshore RMB against the US dollar fell below the "7" barrier, the lowest depreciation to 7.0421, and the era of breaking 7 came.

　　 For practitioners of textile and garment trade circles, the rise or fall of the renminbi will be related to their immediate interests. Orders for textile and garment export enterprises in China are generally settled in US dollars, and RMB depreciates, that is, 1 US dollars can be exchanged for more RMB. Especially in the context of Sino US trade war, the devaluation of the RMB exchange rate has contributed to the financial efficiency of export enterprises to a certain extent, easing the pressure of the expected increase in export tariffs. "Now the foreign exchange enterprises can be happy, originally expected to be 6.8 of the foreign exchange settlement, now about 7 yuan settlement, instantly more than 20 Fen of the profits." In August 5th, the head of a large foreign trade enterprise in Zhejiang said in an interview.

Although some enterprises enjoy the direct benefits brought by the recent exchange rate fluctuations, for most enterprises, the positive effect of "breaking 7" is not as big as expected. "Devaluation is good for export enterprises, and the settlement of accounts payable will increase profits. But the goods sold now may not increase profits, because the accounts will be returned in about two months. At that time, the RMB exchange rate is hard to say. A foreign trade company official said, "in addition, taking into account the cost of imported raw materials, buyers bargaining and other factors, a drop or a rise, the final profit may be flat."

Insiders pointed out that, in addition to the completion of delivery, the process of settlement, and no fixed exchange rate orders, because of these two days of decline, "cheap", other orders can not immediately get additional profits, some export enterprises even because they did not take advantage of the psychological imbalance, after all, the early order locked foreign orders will not be affected by the rise and fall of the renminbi, and there is no way to enjoy the benefits of sudden devaluation.

Li Changchun, manager of Wujiang Weihua Textile Co., Ltd., said that the RMB exchange rate was broken by 7, which is good for the overall foreign trade situation. He believes that on the one hand, foreign businessmen themselves are very smart. In the face of the depreciation of the renminbi, they naturally have "psychological number" when making quotations, and will adjust their quotations accordingly. On the other hand, although depreciation will give Chinese products more advantages in the international market than before, competition among domestic counterparts is still fierce. Therefore, he believes that the impact of devaluation on the textile industry is relatively limited.

Import enterprises: raw material prices are more affecting people's hearts.

"Compared with the current level of exchange rate changes, changes in raw material prices and tariffs have greater impact on import companies. For example, the current decline in crude oil prices is greater than the depreciation rate of RMB. Although the RMB exchange rate has broken 7, the chemical fiber enterprises that need to import raw materials will still not be affected too much. The head of a textile industry in Zhejiang said.

Taking viscose staple fiber industry as an example, the price of imported raw materials has fluctuated considerably since 2019. In the 1~6 months of this year, the market price of dissolving pulp dropped from 900 US dollars per ton to 800~820 US dollars / ton, and the price difference was 90 US dollars / ton, down 10%. Among them, 1~4 months, import dissolving pulp market prices showed a slower decline, but 5~6 months, the import dissolving pulp market showed a relatively rapid decline trend. Industry analysts pointed out that in the next period of time, the market price of dissolving pulp still has the possibility of continuing to fall, and the amount of imported dissolving pulp will remain dominant in the market for a period of time.

At present, China's dependence on imported raw materials for dissolving pulp is as high as 66%~70%. The decline in import dissolving pulp prices has lowered the import cost of China's viscose fiber enterprises. For most textile enterprises, the drop in the cost of the 10% is much greater than the impact of exchange rate fluctuation "0.1%~0.3%".

　　 Worry about exchange rate is not as strong as trade war.

As one of the main exporters of textile materials and textile products, the United States has played an important role in the development of China's textile industry. Since the Sino US trade war began in 2018, the United States imposed tariffs on the profits of many export enterprises, but from the statistical data, the overall export is still in a steady development trend. According to China Customs data, the export volume of textiles and clothing in China in the first half of 2019 was $128 billion 400 million, down 2% from the same period last year, and the growth rate slowed down 4.8 and 0.4 percentage points respectively from the same period last year and the first quarter of this year. In the first half of the year, China's exports of textiles and clothing to the United States decreased by 0.7% over the same period last year.

Over the past year, most export companies have already had some psychological expectations for tariff increases. They believe that even if the $300 billion tariff falls, the impact on enterprises is controllable. The most effective measure to resist these risks is to enhance the competitiveness of products, whether they impose tariffs or fluctuations in the RMB exchange rate.

Ying Xiuzhen, deputy general manager of Ningbo Zhongji group, said that at present, the United States exports 200 billion dollars of goods to China to levy 25% tariffs, of which about 6% is devalued by RMB depreciation, 2% is reduced by tax reduction and digestion, 2% is reduced by the cost of financing, the rest is borne by export manufacturers, customers and consumers, and the proportion is mainly determined by the competitiveness of products.

In terms of the RMB exchange rate, many responsible persons in the export industry have indicated that: enterprises are not worried about the trend of appreciation or depreciation, and the sharp fluctuations in the short term have the greatest negative impact on enterprises. At present, enterprises adopt a proportionate, sub batch settlement and exchange rate risk management in accordance with the comparison of long-term forward lock up.

The central bank also said that it did not want companies to expose themselves to exchange rate risks, and to support enterprises to buy exchange rate hedging products to avoid exchange rate risks. At the same time, we should also see that the RMB exchange rate is likely to depreciate or to appreciate. The two way floating is normal. It is not only for enterprises, even more professional financial institutions, can hardly predict the trend of exchange rate. It is suggested that enterprises should concentrate on physical business and do not spend too much energy on judging or opportunistic exchange rate trends. It is necessary to set up a financial concept of "risk neutral". Foreign exchange derivatives should be targeted at locking foreign exchange costs, reducing uncertainty in production and operation, and realizing the profit of main business, rather than taking profits from foreign exchange derivatives trading as its purpose.

In August 5th, relevant people in charge of the people's Bank of China replied to the Financial Times reporter's questions about the RMB exchange rate. The following are the key points of the Q & A:

1. why break 7?

Influenced by unilateralism and protectionist measures and tariff expectations on China, the RMB depreciated against the US dollar in August 5th.

2. break 7 is normal.

The RMB exchange rate "broke 7", this "7" is not the age, in the past can not come back, nor is it a dyke. Once it is washed away, the flood will be a great drain. "7" is more like the water level of the reservoir. When the flood season is higher, it will be down when the dry season is over.

3. RMB has appreciated in general.

In the past 20 years, the RMB nominal effective exchange rate and the real effective exchange rate calculated by the bank for international settlements have risen by about 30%, and the RMB has appreciated by 20% against the US dollar, which is the most powerful currency in the major international currencies.

How do we go after 4. break 7?

The people's Bank of China has the experience, confidence and ability to maintain a basically stable RMB exchange rate at a reasonable and balanced level.

5. what is the impact on enterprises and residents?

Over the past 20 years, the renminbi has risen more or less than the US dollar and a basket of currencies. The main financial assets of the Chinese people have been best protected in Renminbi, and their external purchasing power has risen steadily. These can be reflected from the common people's traveling abroad, foreign purchases and children's overseas schooling.

We do not want companies to expose too much to exchange rate risk, and to support enterprises to purchase exchange rate hedging products to avoid exchange rate risk.