The U.S. dollar index continues to rise, putting pressure on the exchange rates of non-U.S. currencies. The onshore and offshore RMB exchange rates have fallen against the US dollar, hitting new lows since August 2020.
01
According to the China Foreign Exchange Trading Center, on September 5, the central parity rate of the RMB against the US dollar in the inter-bank foreign exchange market was 6.8998 yuan, 81 basis points lower than the previous value.
“The current global foreign exchange market shows a pattern of strong US dollars and weak non-US dollar currencies. As a non-US dollar currency, the renminbi has also been affected to a certain extent.” said Zhao Qingming, deputy director of the China Foreign Exchange Investment Research Institute.
Wang Youxin, a senior researcher at the Bank of China Research Institute, believes that the central bank has recently lowered the medium-term lending facility and the loan prime rate (LPR), and the monetary policy trends of China and the United States have continued to diverge, which has also caused certain disturbances to short-term cross-border capital flows and exchange rates.
Yang Delong, chief economist of Qianhai Kaiyuan Fund, said that from an economic perspective, my country’s economy has been affected by unexpected factors this year, and the economic growth rate has experienced a significant correction, which has also had a certain impact on the trend of the RMB. . The economic recovery in the second half of the year was relatively weak. In July and August, the PMI returned below the 50% dividing line between prosperity and contraction for two consecutive months. Only in June it returned to above 50%. This shows that the foundation for economic recovery is still weak and cannot be taken lightly. . The depreciation of the RMB will have a certain impact on my country’s import and export trade. Generally speaking, the depreciation of the RMB will be beneficial to the export trade, but if the depreciation is larger, it may affect the confidence of overseas investors. From a macroeconomic perspective, the current economy is in the stage of slow recovery after hitting bottom. Although the recovery is not strong, the recovery trend has gradually taken shape.
02
As a major textile exporting country, what impact will the depreciation of the RMB have on textile companies?
Vosges, a leading home textile company, recently responded to investor inquiries and stated that the depreciation of the RMB will be beneficial to the company’s exports. Jiangsu Cathay, which mainly engages in the import and export trade of clothing and knitwear, also said that the company pays close attention to changes in the international market environment and exchange rate changes. A moderate depreciation of the RMB will be beneficial to the company’s foreign trade export business.
In the short term, exchange rate fluctuations have brought certain benefits to foreign trade companies. Some foreign traders have also quickly made adjustments to foreign exchange lock-in and pricing to enhance their competitiveness under the severe foreign trade situation.
“I thought it would be around 6.8 for a while, but I didn’t expect it to break through 6.9 so quickly.” Meng Zhuo, manager of a clothing foreign trade company in Anhui Province, said that due to the recent significant decline in the RMB exchange rate, they have decided to suspend all orders for the end of this year. The operation of locking the exchange rate.
As a sales person who is always on the front line, Meng Zhuo said frankly that judging from the current domestic and foreign markets, the foreign trade situation is not too optimistic. After suspending the foreign exchange lock for the next orders this year, they plan to carry out 30% to 50% foreign exchange lock operation for orders exceeding US$500,000 from March to April next year.
Zhao Benzhi, director of the foreign trade business of Shanghai Puqi Textiles, said that due to the small business volume, the company does not do much in exchange locking. It mainly follows the market trend, but it will take into account the trend changes in exchange rates when quoting and relax relevant agreements.
It can be said that exchange rate fluctuations are expected for foreign trade companies and have become a “normal” challenge faced by companies.
A foreign trade person in the textile industry told a reporter from China Textile News that the recent depreciation of the RMB against the US dollar has had an overall impact on the production and operation of the textile industry in three aspects: For companies with a high proportion of export sales, they also have more US dollars. Enterprises with assets will benefit; enterprises that do not purchase upstream raw materials entirely domestically and are highly dependent on imported raw materials such as imported cotton, cotton yarn, equipment, etc. will be negatively affected; enterprises with US dollar foreign debts or forward exchange settlements will be negatively affected. have an impact on the company’s expected earnings. For some large enterprises, these three situations coexist, and specific enterprises are affected to varying degrees.
Yao Yu, an analyst at Huaan Futures, believes that due to the depreciation of the renminbi, the purchasing power of foreign consumers for Chinese products will significantly increase. For my country’s export companies, it may mean receiving more orders. Even if the number of orders received is the same as in previous years, the company’s operating income will also increase. This is one of the main reasons why my country’s textile export data still performs well this year. Of course, RMB depreciation has both advantages and disadvantages. For imported goods, it will cost more. Therefore, we can see that the quantity of imported cotton and cotton yarn has decreased in recent times, part of which is due to the increase in costs caused by the depreciation of the RMB.
Luo Yucheng, deputy secretary-general of the Jinjiang Dyeing and Finishing Industry Association, told reporters that the depreciation of the RMB has a certain positive effect on exports, but its impact should not be overestimated. Since 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, the degree of positive impact on performance needs to be analyzed on a case-by-case basis. He suggested that textile companies should pay close attention to changes in the international market environment and exchange rate changes in order to obtain more benefits and improve their ability to resist foreign exchange risks by rationally optimizing the structure of foreign currency assets and liabilities.
03
China textile import and exportZhu Yuxing, head of the Ministry of Social Affairs and Information, said in an interview with reporters that the current decline in the RMB exchange rate against the U.S. dollar is mainly due to short-term fluctuations caused by the rapid strengthening of the U.S. dollar index. There is no strong depreciation expectation, and the short-term pressure on the RMB exchange rate will not change. long-term stable pattern. The reason why textile and clothing export companies pay attention to “breaking 7” is more because of the psychological integer barrier.
Zhu Yuxing pointed out that although the depreciation of the local currency is beneficial to exports, exporting textile companies still hope that exchange rate fluctuations will be within a stable range. The impact of RMB exchange rate fluctuations on export textile enterprises is mainly reflected in two aspects, one is foreign exchange settlement, and the other is raw material prices. In terms of foreign exchange settlement, generally speaking, the lower the exchange rate, the more favorable it is for exports. However, as the exchange rate drops, overseas orders will also be priced down, and the time for foreign exchange collection is uncertain. If the spot exchange rate at the time of foreign exchange collection fluctuates again, there is a risk that the gain outweighs the loss. In terms of raw material prices, the lower RMB exchange rate is not conducive to imports, resulting in an increase in the import price of cotton, chemical fiber and other raw materials used for production, which will drive up the production costs of export textile companies.
Zhu Yuxing said that after years of experience, export textile companies have gradually become more comfortable in the face of fluctuations in the RMB exchange rate. Both large-scale export textile enterprises and small, medium and micro export textile enterprises have accumulated certain experience in avoiding trade exchange rate risks, and their exchange rate risk management capabilities have been continuously enhanced.
Zhu Yuxing said that there is no need to overemphasize the depreciation of the RMB exchange rate at present. If the RMB depreciates excessively in the future and affects the country’s financial security, the central bank will inevitably take measures to stabilize the exchange rate. In the long run, moderate two-way fluctuations in the RMB exchange rate are normal; overall, the impact on export textile companies is controllable.
Although the current global economic and monetary policy situation is becoming increasingly complex, on the whole, experts generally say that the current resilience of the RMB is still obvious.
Yang Delong said that the rise and fall of the exchange rate is a double-edged sword for the foreign trade industry. The moderate depreciation of the RMB exchange rate will help enhance the competitiveness and price advantage of export trade and promote the recovery of the real economy. However, the import costs of import companies will increase. . In the short term, the U.S. dollar index continues to strengthen, and the RMB exchange rate may be under pressure. In the medium to long term, the real exchange rate of the RMB has strong resilience and is unlikely to fall significantly. Because in the long run, it is still economic fundamentals that support the RMB exchange rate. After economic growth stabilizes and rebounds, the RMB may stabilize to a certain extent. Now both the government and the market have greatly increased their tolerance and adaptability to two-way fluctuations and wide fluctuations in exchange rates.
China Merchants Securities analysis pointed out that the U.S. dollar is likely to continue to be strong until the end of the Federal Reserve’s interest rate hikes and the elimination of European energy risks. The inflection point is expected to be from the end of this year to the beginning of next year. Mingming, chief economist of CITIC Securities, believes that the balance of payments will be in balance in 2022, and the RMB will most likely remain volatile.
Wu Dan of the Bank of China Research Institute analyzed in the 135th issue of “Quick Review of Economic and Financial Hotspots” in 2022 that in the medium to long term, there is still strong support for the RMB exchange rate to remain stable. First, the stable relationship between foreign exchange supply and demand is the key support for the RMB exchange rate. Judging from the foreign exchange settlement and sales data released by the State Administration of Foreign Exchange on August 15, my country’s current account surplus in July was US$15.978 billion, a significant rebound from June; the goods trade surplus was US$30.692 billion, an increase of 20.94% from June. The growing current account surplus will help partially offset the impact of short-term capital outflows and maintain the overall stability of the supply and demand relationship in the foreign exchange market. Second, expectations for RMB foreign exchange settlement and sales are stable. Judging from market expectations, the Fed’s hawkish interest rate hike rhetoric has not had much impact on the demand for RMB foreign exchange. On August 29, the spot inquiry volume of the US dollar against the RMB was US$41.02 billion, 25.76% higher than the average of US$32.617 billion this year. The average spot inquiry volume of the US dollar against the RMB in August was also US$40.193 billion. Taken together, with the support of various domestic policies, the domestic economic recovery momentum will still be strong in the second half of the year, the international balance of payments will be well balanced, the scale of foreign exchange reserves will be reasonable and sufficient, and the RMB exchange rate will fluctuate in both directions within a reasonable threshold range. Enterprises and the market should also adopt a risk-neutral concept, be guided by actual demand, and actively seek reasonable hedging through foreign exchange derivatives.
</p
