Textile Industry Can Bear The Highest Appreciation Of RMB 8%

Insiders say the industry will suffer a fatal blow if it suddenly rises sharply.

Just over a day, the new record of the 7.9499 yuan since the central parity of the RMB exchange rate has been renewed.

In September 5th, the central parity of the RMB exchange rate was 7.9425, and then increased by 74 basis points.

The announcement issued by the people's Bank of China authorized by the China Foreign Exchange Trading Center shows that in September 5, 2006, the middle price of the exchange rate between the US dollar and other trading currencies in the inter-bank foreign exchange market was RMB 1 yuan to 7.9425 yuan.

In September 5th, the central parity of RMB against the US dollar changed to a new high.

This is the fifth time since the last Tuesday that the central parity of the RMB exchange rate has been rewritten.

Market analysts believe that the RMB exchange rate has even reached a record high, which is closely related to the weakness of the US dollar.

In addition, APEC, G7 and the International Monetary Fund will meet this month, all of which will increase the pressure on RMB appreciation.

Since the reform of the RMB exchange rate, the textile industry has been regarded as the first to suffer the greatest impact of appreciation due to its large dependence on exports and low average profit margins.

Yesterday, the central parity of the RMB exchange rate reached a new record of 7.9425, compared with the exchange rate level at the time of foreign exchange reform, and the appreciation of the renminbi has reached about 3.8%.

The related fact is that the analysis report on the economic performance of the textile industry in the first half of 2006, released by the national development and Reform Commission at the end of last month, shows that the average profit margin of China's textile industry is only 3%, which is basically the same as last year's profit level, with only 6 of the national manufacturing average profit.

Does the appreciation of 3.8% mean a profit margin of 3% for textile industry?

Many industry experts and business executives pointed out that the fact is not so pessimistic.

As long as the appreciation of the renminbi is gradual rather than abrupt, and with the state's control over the price of raw materials in the textile industry and the reduction of taxes on domestic enterprises in the two tax unification policy, the textile industry still has great affordability for the appreciation of the renminbi.

According to Ma Xinzheng, editor in chief of the first textile network, according to the data of the first half of 2006, considering the factors such as the proportion of tradable goods in the cost and the bargaining power of the industry, the profit and loss balance point of the export products as the highest appreciation rate of the RMB, the textile industry's export products can be appreciated by 6% to 8%.

"However, different sub sectors and enterprises of different sizes, the affordability of RMB appreciation is also very obvious differentiation."

Wang Qianjin, a senior industry analyst, also pointed out that the cotton spinning and chemical fiber industry is the basic industry of the textile industry. Although the added value is low and bargaining power is low, its export products are weakest in the appreciation of the renminbi, but the proportion of raw materials imports is large and the proportion of products exported is small.

Comparatively speaking, domestic textile, knitted, garment and other sub industries are more dependent on exports, and the impact will be greater.

According to the report of the national development and Reform Commission, Ma Xinzheng pointed out that when the RMB appreciated by 5%, the export profits of the whole industry decreased by 66%, of which, the cotton textile industry dropped by 94%, the knitting industry dropped by 82%, the home textile industry dropped by 58%, and the clothing industry dropped by 46%; when the value of the RMB appreciated 8%, 6.5%, 5.5%, the export of garments, knitted and cotton textile industry was turned from profit to loss.

"Appreciation is equal to all enterprises in the country. From this perspective, it is fair, and enterprises will gradually adapt to it."

Wang Yongli, deputy general manager of Guangdong silk import and Export Group, said.

The actual performance of the textile industry also shows that at least half of the appreciation of the renminbi has been successfully pferred to the importers since the reform.

Worries about the suspension of production of large and medium sized textile enterprises did not occur during the reform.

"The key is that the appreciation of the renminbi can not be done at one time, it must be gradual, so that we can adapt to our time, such as improving the technological level and added value of products."

Wang Yongli expressed the hope that the current domestic and foreign enterprises' tax combination policy can be promulgated as soon as possible. Although the RMB may appreciate sharply, the reduction of corporate tax can make more profit margins for enterprises.

According to Wang Yongli, the strategy adopted by the silk group is to avoid risks through financial means. On the other hand, under the condition of ensuring profit margins, part of the pressure on the appreciation of the renminbi is pferred to the importers.

"In the moderate price increase, home textile, clothing and other enterprises in the upper reaches of the industry will also pfer part of the cost to the downstream raw material enterprises."

Wang pointed out that the current domestic textile and garment raw materials enterprises can withstand the average cost of the upper reaches of about 2 - 3% squeezing space.

Sad every year.

In the course of the interview, I heard many people commented on the textile industry of China. I believe that with the gradual improvement of the supporting measures and the gradual appreciation of the textile industry, we will gain some time for the enterprises, and the resilience of the domestic textile enterprises will be further enhanced.