The RMB continued to strengthen on May 31. The offshore RMB rose above 6.77, breaking through six levels in a row. It rose 0.87% or 590 points during the day, the highest since early November last year. The onshore RMB rose strongly, closing up 400 points at 16:00, up nearly 0.6%, with a maximum of 6.8120. The onshore RMB appreciated by 1.1% against the U.S. dollar that month, the largest monthly increase in 14 months.
On June 1, the central parity rate of the RMB against major currencies rose across the board. The central parity rate of RMB against the US dollar was at 6.8090, a surge of 543 points from the previous day’s central parity rate of 6.8633. The central parity rate of RMB against the U.S. dollar increased by the largest amount since January 6, and the central parity level was the highest in more than half a year.
Seeing this, textile companies cried…
Already meager profits have become even worse
China has the world’s most complete industrial chain, the most complete textile industry system, and the highest level of processing support. From raw materials to ready-made garments, China has perfectly connected step by step, making it the world’s largest textile exporter. The rise of the RMB will undoubtedly have a huge impact on it.
According to past practice, the order should be signed first. At this time, the old exchange rate is used, and then payment is made after the goods arrive. The settlement is based on the new exchange rate. RMB appreciation means shrinking profits. Let’s take the exchange rates of 6.7 and 6.8 as an example. If this company’s account is US$100,000, then it will lose 10,000 yuan in vain. A business that mainly exports to the United States complained that it lost 25,000 yuan in just a few days.
For companies that rely on cheap labor and raw materials to gain profits, their already meager profits have been compressed again.
The attraction to foreign investment has declined, reducing foreign direct investment
Nationally speaking, small and medium-sized textile enterprises account for a large proportion, and domestic development basically relies on bank loans to obtain more funds. However, due to various factors and corresponding financing difficulties, only a small number of small and medium-sized enterprises can actually obtain financing. , and the interest generated by bank loans has also become a real pressure on enterprises. Then foreign joint venture capital injection becomes a “hot cake”, but with this wave of RMB price increases, many textile companies waiting for the inflow of funds seem to be crying.
A simple example: A Japanese businessman planned to invest US$1 million to develop new fabrics. In the past two days, the RMB has skyrocketed, once exceeding 6.84 and reaching the 6.86 mark. Calculated based on this exchange rate, the original US$1 million was affected by the exchange rate in the past two days. , not only will textile companies receive 20,000 yuan less investment, but the number of investments from investors will also be reduced accordingly, so it has become a common mentality of foreign investors to wait and see for a while.
For companies hoping to obtain funds, every penny is precious, and the 20,000 yuan of funds that “disappeared in vain” was enough to make this textile company cry for a while in the workshop.
Afterword
Textile companies should be considered one of the people who are most concerned about the rise and fall of the RMB. Whether it is rising or falling, it is affecting textile companies. From a long-term perspective, the impact of RMB appreciation on the long-term profit margins of textile companies will be limited, and similarly, the impact of RMB depreciation will also be limited. From the perspective of the long-term development of the enterprise itself, the sharp rise in the RMB has a positive effect on market consolidation and the survival of the fittest. Only by continuously strengthening the gold content of products and improving their market competitiveness can enterprises finally seize pricing power, stand at a high position and resist risks.
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