China'S Textile Enterprises Are Affected By The Decline Of The Euro Exchange Rate.

1. The recent decline in the euro exchange rate

In May 2010, the exchange rate of RMB against the US dollar was still mainly affected by policy and economic factors. The policy and economic aspects of our country and the United States continued to remain stable this month. The combined effect of various factors made the RMB exchange rate steady against the US dollar.

The RMB versus the euro is pegged to the US dollar because of its different trend.

Under the Greek debt crisis and bad news from Spain, Portugal and Hungary, and the rise of market risk aversion, the euro has depreciated sharply against the US dollar and the euro against major currencies.

Correspondingly, the yuan rose sharply against the euro, which was 9.0144:1 at the beginning of the month, and 8.4015:1 at the end of the month, rising by 6.8%.

Euro to us dollar exchange rate trend

Two, China's May textile and clothing export data are coming on the stage.

In June 10th, the General Administration of Customs announced that in May, the total value of China's imports and exports was US $243 billion 990 million, an increase of 48.5% over the same period last year.

Of which, exports of US $131 billion 760 million, an increase of 48.5% over the same period last year, 18.1 percentage points higher than last month.

Imports of $112 billion 230 million, a year-on-year increase of 48.3%, fell 1.4 percentage points over last month.

The export of textile and clothing industry and the macro-economy maintained a synchronous growth trend. According to calculation, in the month of May, China's export textile and clothing amounted to $16 billion 422 million, an increase of 1 billion 887 million US dollars from last month, a 12.89% increase in the ring, and an increase of 33.45% over the same period.

Among them, textile yarns, fabrics and products exported 6 billion 964 million US dollars a month, up 42.27% from the same period, 9 billion 458 million US dollars for clothing and accessories in a month, an increase of 15.98% over the same period.

Despite the bright data of textile exports in May, market participants still worry about sustainability of such a high speed growth.

Three. Is there a J curve effect on European exports?

The so-called J curve effect is that after the depreciation of the domestic currency, the initial situation is often the opposite. The current account receipts and expenditures will deteriorate instead of the original ones, and imports will increase and exports will decrease.

This change is known as the "J curve effect".

The "J curve effect" is due to the "sticky effect" of consumption and production behavior during the initial period of currency devaluation. The volume of import and export trade will not change significantly. However, due to the change of exchange rate, the export receipts in foreign currencies will be relatively reduced, and the import expenditure in domestic currency will increase relatively, resulting in an increase in current account deficit or a decrease in surplus.

After a period of time, this situation began to change. Import commodities gradually decreased, and export commodities gradually increased, making the current account receipts and payments in a favorable direction, first offset the original adverse effects, and then improved the current account balance.

This process may last for months or even one or two years, depending on the circumstances of different countries.

Therefore, the impact of exchange rate changes on the trade situation has a "lag effect".

Freeman, a senior researcher at the Brussels Institute of contemporary China and Professor darken, a professor of Belgium Free University, recently pointed out that the EU's imports from China are not optimistic. First, the European debt crisis will inevitably reduce European economic growth and reduce the demand for Chinese products.

Two, weak euro is not conducive to European purchases of Chinese products.

Three, the unemployment rate in the eurozone is facing a risk of rising.

It is hard to predict how long the euro will remain weak, but it is certain that the weak euro will affect trade between China and Europe in the medium and short term.

Trend of euro area unemployment rate as of April 2010

Four. The impact of the decline of the euro exchange rate and the appreciation of RMB on China's textile exports.

1, advance order loss.

A few months ago, orders for unfinished export orders, which were signed in euros or RMB 1:9, were almost completely locked up, unless exporters did not exchange foreign exchange to wait for the euro to appreciate again.

However, although the result is no loss of foreign exchange, it is hard to predict when the euro will appreciate.

Moreover, the foreign exchange which has been locked up has increased the capital occupation of enterprises and increased the opportunity cost of capital and trade.

Judging from the current situation of some export enterprises in China, the loss caused by the sharp fluctuation of exchange rate exists in varying degrees, and a serious phenomenon of default has occurred.

At the beginning of this year, a foreign trade enterprise in Dongguan signed a clothing order of 500 thousand euros, stipulating delivery in 3 months. According to the exchange rate at that time, 100 thousand euros could be exchanged for 979 thousand and 700 yuan, but when delivery was still 100 thousand euros, it could only be exchanged for about 850 thousand RMB.

At the end of last year, some enterprises in China worried about the appreciation of the RMB against the US dollar and settled it in euros.

2, export enterprises can only accept short bills and small orders, so that the volume of exports will decline and the unstable factors will increase.

Because the prospects for economic recovery in the euro area countries are uncertain and the Greek debt crisis suddenly broke out, such double effects have made European buyers try their best to control risks. They have subjective intention to sign short-term orders and small orders in order to control risks.

As an exporter, China's textile export and production enterprises have changed rapidly because of the exchange rate of the euro. Although there is a desire to maintain production and win volume, no one can produce at a loss, so signing short lists and small bills has become an expedient measure.

3, weaken the export price advantage and reduce the profits of enterprises.

The export of textile and garment enterprises in China is mostly products with low technological content and few high-tech products.

If the RMB appreciates, the competitiveness of the textile industry will be gradually lost globally.

Some experts estimate that if the appreciation of RMB is 10%, the export price will be increased by 10%, while the profits of domestic textile enterprises will be only about 5%, plus some financial discount, the average level of Chinese enterprises' profits will be less than 3%.

How can the average profit margin of 3% adjust the pressure of nearly 15% appreciation? Some time ago, some buyers in the US and Europe increased their orders for Southeast Asia and other countries, which fully explained the impact. Of course, China's textile exports to Europe still occupy a larger proportion of the total import volume of these countries, but the order pfer phenomenon has to be taken seriously.

4, the EU export trade, production enterprises benefit decline

Since the beginning of this year, the European Union has become the most important export market in China. In 1-4, exports to Europe accounted for 20% of the total export volume of China's textile products.

It is the largest market of textile and clothing export in China.

Affected by the European debt crisis, since the beginning of the year, the euro has depreciated in disguise of about 15%. For small and medium-sized textile enterprises with an average profit margin of only 3%~5%, the profit from the settlement of euros has basically been offset.

On the other hand, due to the EU's economic downturn, the unemployment rate of the 27 countries in the EU was 9.7% in April this year, although it was unchanged from last month, it is far higher than 8.7% in the same period last year, the highest level since 2000.

This means that the overall consumption capacity of the EU will decline, and the further impact is likely to be the shrinking demand for consumer goods such as textiles and clothing.

According to the study of felway, director of the Department of economic research at CLSA, it is usually the case that the euro is down by 1%, while China's exports to the EU will be reduced by 0.65%, while the GDP in the euro area will be reduced by 1% and China's exports will be reduced by 6%.

Huo Jianguo, Dean of the international trade and Economic Research Institute of the Ministry of Commerce, has said that the European sovereign debt crisis is expected to respond more significantly in the months of 5~6 and the third quarter, and that China's export growth to Europe may decline by 6%~7%.

5, frail against Europe

At present, only a large number of export enterprises with relatively large bargaining power are able to share the exchange rate risk with the buyers.

However, this way of raising the price of products to make up for the fluctuation of exchange rate is often faced with the risk of order loss.

China's textile and garment export enterprises and textile production enterprises are mainly small and medium enterprises. More than 95% of the enterprises produce low-end OEM products. The pricing power of these exported to Europe is basically in the hands of foreign producers, traders, wholesalers and retailers. Our bargaining power with foreign factories and businesses is very weak, and basically can not control the pricing. They can only earn some processing fees and poor profits.

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6, embarrassing settlement process

The settlement of foreign exchange refers to the sale of foreign exchange earnings to the designated foreign exchange banks by foreign exchange earnings. The designated foreign exchange banks pay the equivalent value of Renminbi at a certain exchange rate.

Forward sale and settlement refers to the foreign currency, amount, exchange rate and time limit for the future settlement or sale of foreign exchange, which is signed by the bank and the customer, and the settlement or sale of foreign exchange is handled according to the currency, amount and exchange rate stipulated in the contract at the time when the foreign exchange income or expenditure is due.

Banks usually require customers to submit a certain percentage of margin or direct credit.

Assuming that there is a high expectation of RMB appreciation in the market now, based on this expectation, if an enterprise and a bank agree on the price of forward settlement, the contract will expire at that time and the rate of appreciation is not as large as expected. For enterprises, the difference between the contract price and the spot exchange rate will constitute a loss.

Similarly, if the appreciation rate is equal to or greater than the agreed price at maturity, the risk of RMB appreciation will be avoided.

For most enterprises, the main hedge species currently chosen is forward sale and exchange. However, at present, enterprises have little bargaining power in this regard, and the prices given by banks from their own earnings can not meet the risk aversion needs of enterprises.

As far as banks are concerned, banks set up forward selling and selling business and swap businesses, which are pferring risks to banks. However, banks lack the corresponding risk hedging tools. Therefore, the risk of enterprises avoiding the fluctuation of exchange rate is entirely borne by banks.

If the company meets the requirements of the enterprise, the bank will take the huge risk of foreign exchange exposure alone.

In spite of the existence of interbank foreign exchange market in our country, because banks often have the same directional net positions and smaller market volume, the desire to avoid risks is often difficult to satisfy.

In April 5, 2006, China foreign exchange trading center reached a cooperation agreement with the Chicago commodity exchange (CME). Members of the foreign exchange trading center can buy and sell the exchange rate and interest rate derivatives of CME across the ocean through trading centers, but this is a new thing after all. There are deficiencies in terms of technology, trading capabilities, risk control capabilities, trading experience and policy constraints, and it is difficult to implement.

7, accelerate small and medium enterprises to stop production, reduce production

According to estimates, when other factors of production cost and price remain unchanged, RMB appreciation will be reduced by 1% by 1 percentage points.

Due to worries about the appreciation of RMB, the textile enterprises are afraid to take orders at the moment, which seriously affects the operation rate of the enterprises, and also makes many foreign orders go to Vietnam, Kampuchea, India and other countries.

Although export data from May show that the European debt crisis has not yet brought the current impact on China's exports to Europe, it may also be due to the fact that the volume of exports in May was the reason for the early signing of the contracts. Once such a large depreciation of the euro is converted into real trade, it is estimated that the export growth rate in the latter part of this year will not be optimistic.

According to the survey conducted by the Guangdong provincial Party committee research office and the Guangdong SME Bureau in mid March this year, the total number of small and medium-sized enterprises in 2009 was closed to more than 9000 in Yangjiang. These enterprises are mainly concentrated in export oriented textile and clothing, hardware plastics, electronic products, Tao Cijian materials and other industries.

There are five main reasons leading to the closure and closure of small and medium-sized enterprises: (1) the traditional enterprises are small in scale, low in technical level and weak in economic strength, and can not adapt themselves to the changes in the economic situation; (2) difficulties and crises faced by SMEs have accelerated the failure of some poor management and blind investment enterprises; (3) some small and medium-sized enterprises have consciously pferred the original enterprises because of the need to upgrade the industrial scale; (4) some owners have been avoiding the arrears of wages or debts through the closure; (5) the export orders of some export oriented enterprises have been reduced sharply, and the domestic sales network of the export enterprises has not been perfect, and the product overstock has finally been forced to stop production and shut down.

Although there are many reasons for these enterprises to stop and stop, the weakening of competitiveness and the reduction of orders are obviously one of the reasons.

8, imminent danger avoidance channels

Exchange rate risk, also known as foreign exchange risk, refers to the possibility of an economy losing its value in foreign economic activities due to changes in exchange rate movements in assets and liabilities denominated in foreign currencies.

It can be divided into three types: paction risk, accounting risk and economic risk.

Trading risk refers to the risks arising from foreign exchange pactions, including risks in foreign exchange trading and risks in settlement of foreign trade.

When export-oriented enterprises purchase machinery and equipment and raw materials, purchase foreign currency in local currency, or sell goods to obtain foreign exchange, they need to exchange foreign currency. In exchange process between local currency and foreign currency, exchange rate risk arises.

When export oriented enterprises trade in foreign currencies, the risks arising from future clearing accounts are not known, and they are also known as risks in settlement of foreign trade.

Accounting risk is also called evaluation risk.

It refers to the possibility that the exchange rate changes cause the book value of assets and liabilities to change in accounting.

When dealing with accounting for foreign affairs, export-oriented enterprises will inevitably involve how to use local currency to evaluate foreign currency claims and debts. Because of the different exchange rates used in accounting, there will be differences in profits and losses on books.

Economic risk refers to the possibility that the unforeseen exchange rate changes will affect the income of export oriented enterprises in a certain period of time by affecting projects such as output, cost and price.

If the exchange rate of a country's currency rises, the exporters will take risks and reduce their expected foreign exchange earnings into local currencies.

For the current sharp fluctuations in the euro exchange rate, many of our country

Foreign exchange futures: foreign exchange futures is a standard combination paction between the two parties that the two parties agree to exchange one currency for another currency at a certain time in the future.

It refers to futures contracts based on exchange rate, which are used to avoid exchange rate risk.

It is the earliest variety in financial futures.

Since the launch of the first foreign exchange futures contract in the international monetary market segment of the Chicago Mercantile Exchange in May 1972, with the development of international trade and the acceleration of the integration process of the world economy, foreign exchange futures trading has maintained a strong momentum of development.

It not only provides an effective hedging tool for investors and financial institutions, but also provides new means of profit for arbitrators and speculators.

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Foreign exchange option is the most widely used tool in the international foreign exchange market. It can not only avoid exchange rate risks, but also make investors profitable.

Foreign exchange options are divided into call and sell options.

The characteristics of call options are that they can lock risks. If they pay a premium first, there will be no risk at all, and the proceeds can be infinite. The characteristics of the options are that the proceeds are fixed, and the risk is infinite, that is, the exposure risk.

The use of foreign exchange option tools will enable enterprises to avoid risks arising from receivable or foreign exchange receivables.

Forward exchange: for export and manufacturing enterprises, forex trading is an easy to operate and relatively mature hedge derivatives.

A considerable number of foreign trade enterprises in China have also carried out beneficial practice, which is feasible and practical.

Foreign exchange swap refers to the form of trading between the two sides of the agreement that they will exchange certain assets at a certain time in the future. There are many kinds of swaps, and foreign exchange swap is only one of them.

That is, holding a risk at the same time, reverse operation to eliminate the existing risks.

The foreign exchange swap actually contains two pactions, one spot paction and one forward paction. The two pactions take place in the same time period, and the amount is the same, but the opposite direction.

China's central bank has made special requests for foreign exchange swap pactions, and the relevant commercial banks have already launched this business, but at present, they are restricted by various factors, and the scale of pactions is small, and the use of enterprises is not extensive.

Trade

Overall, the depreciation of the euro will have a greater impact on China's exports to Europe, and the reality needs to force our export enterprises to establish corresponding preventive strategies.

At the same time, the government should also take actions in setting up a risk aversion channel.