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Yuan appreciation cuts profits of Chinese textile firms
May '13
The appreciation of the Chinese currency vis-à-vis the US dollar is resulting in a decrease in profit margins of Chinese textile enterprises.
Data from the China Foreign Exchange Trade Centre shows that Renminbi was traded at 6.2082 against the US dollar at the interbank foreign exchange market on May 2, sharply up 126 basis points from the previous day, setting the highest single-day gain this year, and the new high since the reform of foreign exchange.
According to statistics, the exchange rate of RMB against the US dollar has risen by 773 basis points or 1.25 percent since the beginning of 2013. This has impacted export-oriented firms the most.
The export-oriented firms are already struggling in recent years due to rising cost of production. The relatively large fluctuation in the RMB exchange rate has further increased the trouble of these enterprises.
According to official estimates, operating profit of cotton textile industry drops by about 12 percent on every one percent appreciation of yuan, while the operating profit of wool textile industry dips by about 8 percent, and operating profit of apparel industry decreases by about 13 percent.
Some analysts believe that the RMB appreciation is a sharp knife for export-oriented enterprises, as it reduces the profit margin, while forcing the enterprises to transform and upgrade.
The recently held Canton Fair also reflects that enterprises are actively taking the initiative to carry out the transformation and upgrading. In recent years, some enterprises, after transformation and upgrading, are now relying on latest technologies, product innovation, design innovation, and are exploring new markets at the same time, to bag more orders.

Fibre2fashion News Desk - China

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