When Sweater Meets RMB Appreciation

In April 13, 2010, the one-year forward contract of RMB was 6.6361, a record high of nearly 10 months. It had to start to consider the possibility of a significant appreciation of the renminbi in the short term.

Despite the meeting between President Hu Jintao and U.S. President Obama on the 13 day of the month, he said that the reform of the RMB exchange rate formation mechanism would not be pushed forward under external pressure.

However, market expectations for the appreciation of the renminbi have not been affected.

In view of this, it is not empty talk that the appreciation of Renminbi will rise in all walks of life in China.

When the RMB appreciates, the major industries in China will face several unhappy situations, especially the labor-intensive industries such as sweater industry. According to the experts' prediction, if the appreciation rate of RMB exceeds 6%, nearly half of the sweater enterprises will be faced with the fate of bankruptcy. This prediction has made the sweater industry panic, and many people in the sweater blog have published articles. The prospect is not optimistic.

The author here only gives some rough opinions on the impact of RMB appreciation on the development of sweater industry.

First of all, most of the sweater industry orders are from abroad, that is, most of the sweaters are exported, so the appreciation of the renminbi is closely related to the sweater industry.

It is reported that in the southern sweater intensive enterprises in Dalang Town, the foreign trade enterprises there, see a lot of foreign trade orders is not joy, instead began to frown, because if a lot of orders, and the RMB appreciation, their choice is to lose or default part of the order.

Secondly, the appreciation of the RMB will lead to the expansion of the domestic sweater industry, because the trade sheet of sweater industry is far greater than the domestic sales list. With the appreciation of the renminbi, many foreign trade companies have to turn the market to the domestic market under the pressure of survival. As most enterprises will use this way to ease the trauma of the appreciation of the renminbi, it will lead to the expansion of the domestic market of the sweater industry, which will affect the long-term development of the whole sweater industry in the long run.

In addition, after the Spring Festival of 2010, the main export areas of sweaters, such as southeastern coastal areas, all appeared "labor shortage" to varying degrees. The solution to this problem is to increase the personal benefits of factories. This means that the profit margins of the sweater industry originally located in 3%-5% are still declining.

Although the main export market of sweaters has been showing signs of warming after April, it is now facing the trend that the RMB will soon appreciate. This series of problems will undoubtedly bring heavy losses to the small and medium-sized enterprises in the sweater industry.

But when it comes to difficulties and obstacles on the way, is the sweater enterprise waiting to be killed or brave enough to welcome the coming storm?

From the analysis of many cases of sweater net operation, the first thing that sweater enterprises should do is to take the appreciation of RMB into account in order cost. When signing foreign trade contracts with foreign businessmen, they can take direct measures to raise prices, or add relevant articles in foreign trade contracts. For example, if the exchange rate changes exceed a certain range, they should negotiate prices or assume corresponding risks respectively.

In addition, other enterprises avoid the risk of revaluation by directly buying financial hedging products of banks, such as forward foreign exchange pactions, currency options, exchange rate futures and so on.