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RMB appreciation may be blessing for Chinese textile firms
Aug '13
Although the appreciation of the Chinese renminbi (RMB) against the US dollar is affecting China’s export-oriented industries, especially the textiles and clothing industry, analysts now say that it might turnout to be a blessing.
The spot exchange rate for 1 US dollar was 6.2769 on March 17, 2013, and the value of the Chinese currency has gradually appreciated over the months to trade at 6.1219 on August 11.
The appreciation of the Chinese currency against the US dollar is a long-term trend, and since April this year, the appreciation of yuan has been the fastest in two years.
The currency appreciation adversely impacts China’s trade as it is not conducive to exports, where foreign exchange transactions take place in US currency. It is estimated that the textile industry sales profit declines by 2-6 percent for every one percent appreciation of RMB.
However, the appreciation of the renminbi is not all harm, according to analysts. It is because RMB appreciation also means increased purchasing power, which would help in introduction of advanced production lines, as costs of acquiring patented technology will be reduced.
In fact, the appreciation of RMB helps in accelerating the introduction of latest technology needed for upgrading to intensive high value-added model of development that ensures high-quality and high efficiency.
The appreciation of RMB also contributes to expansion of Chinese foreign direct investment (FDI) as Chinese FDI enterprise costs get reduced, analysts say.
It would also be an important driving force for restructuring of export-oriented enterprises, as these companies will have a greater impetus to reduce costs and improve technical capability of innovation, so as to enhance their international competitiveness.
Thus, in the final analysis, currency appreciation may turn out to be blessing for export-oriented Chinese textile and apparel enterprises and help them in quick upgradation of their manufacturing processes.

Fibre2fashion News Desk - India

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