Recently, the news of bank interest rate cuts has attracted many people’s attention.
On June 8,the six major banks collectively lowered interest rates on various types of deposits ,6 month12 day, and 11 Several joint-stock banks followed suit, and deposit interest rates entered the “2 era.”
On June 13 the People’s Bank of China launched an interest rate bidding process of 20 billion For reverse repurchase operations, the winning bid rate is 1.90%, which is a decrease from the previous 2.00% 10 basis points.
China’s finance is heading towards an era of low interest rates!
Interest rates may not seem to have much to do with textile companies, but in fact they are closely related to the normal survival of textile companies.
Interest rates and profits
Interest rates and profits are actually positively related. If the profit of doing business is high in the market, then many people will rush to borrow money, and interest rates will naturally rise; if the profit of doing business is low, or even lose money, then naturally no one will be willing to invest and borrow money. With fewer people, interest rates will be lower.
In the process of rapid economic development, the market is full of business opportunities, and people are naturally willing to borrow money; when the economic growth rate slows down, and the profits earned from the borrowed money cannot cover the interest, of course they are not willing to borrow it.
Assets and Interest Rates
Interest rates are also somewhat inversely related to asset values, which is easier to understand. For an asset originally valued at 1 million, assuming that the rate of return and profit rate are both2%, the annual income is 2 Ten thousand yuan, if the interest rate becomes 1%, and you want to achieve the same annual income of 20,000 yuan, you need200 With a capital cost of 200,000, to a certain extent, the valuation of assets that can achieve such annual income will also rise significantly.
Back to the textile industry, everyone knows that in today’s market, it’s good if the cloth can be sold, and profits are even better. If not, as long as it can be shipped, it doesn’t matter in many cases. Therefore, in this case, most textile companies have no motivation to expand production capacity. After all, the production capacity in the market itself is excess, and they have a headache every day in sales. Wouldn’t it be more difficult to expand production capacity and sales? Moreover, operating with debt is always risky, and not every textile person likes to do this. Of course, low-interest loans are definitely beneficial to the cash flow of textile companies, but the funds obtained from loans are used more for daily operations rather than production capacity expansion. After all, the market environment is not good, and many companies think more about survival.
But not all businesses are like this. For some large enterprises, pure profits are not their first consideration because of their large scale. For them, when the market deteriorates, it is the best opportunity for expansion. In addition, in the case of low returns, the valuation of fixed assets with stable returns will also generally rise. Therefore, we can see news from time to time that a textile industrial park with an investment of hundreds of millions has started construction or gone into production.
And this will have many consequences.
First, the concentration of production capacity. The market has a 28/20 rule. The worse the market situation is, the more obvious the 28/20 rule is. Low capital usage costs will be more helpful to larger companies. After obtaining the financial advantage, the concentration of production capacity in the textile industry chain will be further enhanced from upstream to downstream.
Second, fabric profits are reduced. If you have understood the business model of chain restaurants, you will understand that due to fierce competition, many terminal retail stores are not profitable, but the raw materials and supporting products are profitable. In the future, competition for conventional goods in the textile market will only be more intense than now. It will be difficult to make money as in the past by simply selling conventional gray fabrics.
Third, differentiated competition has become mainstream.��In the future, the profits of conventional products are destined to be difficult to increase, but some differentiated fabrics with thresholds are more likely to bloom. Some “small but sophisticated” textile companies may live more prosperously than now. And in order to survive, weaving and fabric companies will extend more and more downstream of the industrial chain in order to survive with stronger competitiveness and higher profits.
In the final analysis, modern finance is an interest rate game. The rise and fall of interest rates play an important role in economic development, which is why the Federal Reserve’s interest rate hikes cause so much turmoil. Our country has not been affected by severe inflation. Instead, it needs sufficient funds to promote production and consumption in the market. Therefore, interest rates may remain at a low level in the short term in the future.
This kind of low interest rate situation has not been encountered by Chinese textile companies in the past few decades. In the case of low interest rates, how to survive, how to produce, and how to strategy is a new test for textile companies.
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