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China's textile and apparel industry hit hard by currency appreciation

China's textile and apparel industry hit hard by currency appreciation Source:
Date: 23-05-2013
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Speaking at a press conference on May 20, Sheng Danyang, spokesman for the Ministry of Commerce, indicated that the recent accelerated appreciation of the renminbi has had a negative impact on the export competitiveness of Chinese textile and apparel firms. In February, the central government widened the range in which the renminbi can fluctuate on currency markets. As of today, the US dollar/renminbi exchange rate had climbed to 6.1911, a level not seen since 1994.
According to Mr Sheng, volatility in the renminbi’s standing against the main trading currencies has rendered many exporters wary of accepting orders, particularly for forward shipment dates. Exporters’ margins of profit are also understood to have come under pressure. Li Xing, a main fabric producer in Henan province, did not sign an export contract for further than 6 months out at the China Import and Export Fair (Canton Fair) this year. We cannot predict the value of renminbi and any long-term deals could involve heavily losses, the chairman of Li Xing recently told China Business News.
A survey conducted by China’s Ministry of Commerce indicated that between January and April profits earned by 77.5% of local textiles and apparel manufacturers declined substantially. Nearly ten percent of the enterprises surveyed said they could not fulfil contracts, owing to a lack of cash flow.
In the next month or so, China’s central bank is expected to introduce a change in policy permitting companies to settle export contracts in renminbi, thereby negating exchange rate risk for the seller. Increased trading of the renminbi offshore, especially in Hong Kong, mainland China’s largest trading partner, provides scope for buyers to pay in the Chinese currency.
However, while the proposed policy changes will help exporters, the exposure to exchange rate fluctuations would, over the long term, merely be passed to their buyers, despite some having actively purchased the renminbi over recent months. Some analysts suggest the US dollar/renminbi exchange rate could move to around 5.5 yuan in the coming months. Looking to the future, Chinese textiles and apparel manufacturers and exporters will need to improve their profitability by adding value to their products, particularly through branding, and move away from a reliance on price competitiveness (generated in part by a favourable exchange rate) as their chief selling point.
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