RMB Appreciation Hits Textile Industry

The appreciation of the renminbi is the main trend this year.

In April 29th, the central parity of the US dollar against the RMB exchange rate broke 6.5, reaching 6.499.

Since August, the appreciation of RMB has accelerated.

In August 19th, the central parity of the US dollar against the RMB reached 6.3925, and the new high since then.

China's textile and garment industry has a high degree of dependence on foreign countries and is very sensitive to changes in exchange rates.

How will the appreciation of the renminbi affect the textile and garment industry? How should the textile and garment companies respond? We asked Mr. Zhu Qinghua, a light industry researcher of CIC, to analyze us.

Zhu Qinghua: this negative influence, I want to talk about the textile industry and the clothing industry separately.

For the textile industry, first, the appreciation of the renminbi will lead to an increase in the export price of China's textile products, resulting in a decline in the competitiveness of the products in the international market.

Secondly, the adjustment of the RMB exchange rate will have the biggest impact on the export of bulk and low-grade textiles, and the scale of its exports will be suppressed.

As a matter of fact, the sales profit margin of the textile industry will decrease by 2%-6% if the value of RMB rises by 1%.

The appreciation of RMB will increase the production cost of enterprises. This includes the rise of labor costs and the increase of raw material costs caused by the main raw materials procurement from domestic sources, and the increase of costs will push up the prices of products.

However, the price sensitivity of terminal products is relatively high, and there is little room for price rise.

This is bound to compress business profits and some sales, leading to a decline in the profit margin of the industry.

Finally, the appreciation of RMB will increase the labor cost of textile enterprises and force enterprises to move to the labor force.

The negative effects of RMB appreciation on the clothing industry are reflected in the following aspects: on the one hand, because the added value of our clothing products is low (in the international market, the value added of our clothing products is only a few percent of the advanced countries in the world), the industry lacks the outstanding international fashion designers, and the product innovation ability is insufficient, so the ability to resist RMB appreciation is weak. On the other hand, the lack of independent brands is a long-standing problem in China's clothing industry. Most small and medium-sized enterprises are producing products by imitation of the brand clothing of large enterprises, lacking their own brand and influence, so that their product profit margins are small.

Reporter: what positive effects do you think RMB appreciation has on the textile and garment industry?

Zhu Qinghua: first of all, RMB appreciation is conducive to promoting industrial integration and speeding up the survival of the fittest.

At present, there are a large number of small and medium-sized enterprises in China's textile and garment industry, and they have many, small and complex characteristics.

After the financial crisis in 2008, a number of small and medium-sized enterprises have been eliminated, and the industry concentration has begun to increase.

This year, the challenges faced by textile and garment enterprises are more severe.

This will speed up the elimination of backward and uncompetitive enterprises, and the market share left by these enterprises will be preempted by large enterprises.

Leading enterprises in the industry will get a higher growth rate by virtue of their capital, scale, customer resources and anti risk capability, which will form several leading enterprises to occupy most of the market share, while small enterprises will gradually withdraw from the pattern of market competition.

Second, the appreciation of the renminbi will ease the pressure of imported inflation.

Finally, the appreciation of RMB can promote the solution of Sino US trade friction to a certain extent.

Textile industry is the "sunset" industry in the United States, but it is an important industry supporting our economic development.

With the advantage of inherent labor cost, China's textile industry has strong competitiveness in the international market.

After decades of development, China's trade volume in Sino US textile trade expanded from US $1 billion 200 million in 1981 to US $11 billion 800 million in 2008.

However, for the rapid development of China's textile industry, the US Department of Commerce began to take a series of measures to restrict the import of some commodities in China since 2005, which has also led other countries to implement special protective measures for China's textile trade.

The Sino US textile trade has long been a sensitive issue in the Sino US economic and trade trade and even in the political field.

Reporter: from the interim report issued by the listed companies of textile and garment industry, what kind of impact do you think RMB appreciation has on their performance in the first half of the year?

Zhu Qinghua: in the first half of the year, the textile and garment sector fell by 4.9%; the performance of the clothing sector was inferior, down 9.02%.

This is mainly due to the appreciation of the renminbi, leading to the weakening of export pulling effect.

Despite the rise in product prices, sales are restricted, and overall sales are rising.

In fact, the degree of differentiation of textile and garment plates is intensifying.

A number of listed companies with good market base and brand have passed the development of cost pressures through ways such as raising prices, expanding channels and new brand strategies. For example, American bond dress (002269), its quarterly report shows a net profit of 202 million 979 thousand yuan, an increase of 1222.70% over the same period last year, while another part of the production listed companies are highly sensitive to cost and limited in bargaining power, which is greatly influenced by the appreciation of the renminbi. For example, Jin Feida (002239), the main garment accessories and knitted fabric, the first quarter business income decreased by 14.31%, while the net profit of shareholders belonging to the listed company fell by 78.08%.

Reporter: what are your suggestions for the listed companies in the textile and garment industry to deal with the current international economic environment?

Zhu Qinghua: in terms of products, textile and garment enterprises need to accelerate the adjustment of product mix, focus on improving the added value of products, establish their own brands, and actively promote the development of processing trade in the direction of deep processing and high value-added.

China's textile and garment industry has long been competitive with the cost advantage in the international market, but the quality and grade of its products are at a low and medium level.

Products with low technical content and high value-added industrial functional textiles are mainly low and medium grade products of mass consumption, so the production level of fabrics needs to be improved.

In addition, the awareness of brand development in China's clothing enterprises is not strong, leading to low self design and development and low brand awareness. Export is mainly based on licensing and processing. Therefore, we must strive to create our own brand to face the international market competition.

In terms of market layout, we must speed up the implementation of the "going global" strategy, and bypass the trade barriers through direct investment, foreign factories and joint factories, so as to complete the development and layout of the international market.

The successful example of this aspect is the international road of nine herd King (601566).

After the company moved its headquarters to Xiamen, the company settled the supply chain problem through an alliance with IBM, and then acquired a 51% stake in a European clothing brand in the way of acquisition and holding. Meanwhile, the strategy of "going out" was applied to Taiwan, Hongkong, Southeast Asia and other countries and regions.

In terms of risk control, enterprises can make use of foreign exchange financial instruments to effectively avoid foreign exchange risks and enhance the risk tolerance ability of enterprises.

For example, in the process of international settlement, we should use forward products for sale and sale, lock in the cost of collecting foreign exchange, or use swap products to achieve the rational use of foreign currency funds.