China's textile manufacturers, hit by the strengthening of the yuan against the US dollar, are bracing themselves for more losses, with further currency appreciation expected in the coming months.
Barry Zhang, senior manager of Shanghai Foreign Trade Co Ltd's textiles department, said if the currency continues to grow against the US dollar, his department's sales would fall 3-5%. "That will mean our year's hard work will come to nothing," said Zhang.
The textile industry only manages an average profit margin of 3%,according to a recent report by the National Development and Reform Commission.
China allowed the yuan to appreciate by 2% against the greenback in July last year, when the exchange rate stood at about 8.11 yuan to US$1. Since then, the yuan has been moving gradually upward. The appreciation took on a new intensity last week when the yuan exchange rate against the greenback hit record highs between Tuesday and Thursday. After Friday's dip, the yuan hit another record high this Monday, at 7.9499 against the US dollar.
Many economists predicted that this appreciation trend is likely to continue, rising by another 3% against the US dollar to hit 7.72 over the next 12 months. Top Goldman Sachs economist Sun-Bae Kim has made an even bolder prediction, saying the yuan would rise 6% to 7.5% against the greenback in 12 months.
Given the yuan's continuous appreciation, the only thing Zhang can do now is transfer the exchange rate burden to importers abroad.
"For new orders, we can take the costs into account and raise our prices," Zhang said. "But if the yuan continues to go up at an unexpectedly high rate, it will still put us at risk."
Like Zhang, most of the country's textile and garment exporters have chosen to add the cost to their prices.
"If the appreciation is not very sudden, it should not have a serious impact on us," said Yan Haiping, deputy general manager of Ningbo Youngor Import and Export Co Ltd.
Cao Xinyu, vice-chairman of the China Chamber of Commerce for Import & Export of Textiles, said the yuan's appreciation makes it even more urgent for textile and garment companies to speed up the restructuring of their exports.
"China has for 12 years been flooding the world market with one-fourth of the world's textile exports," Cao said. "If Chinese exports continue to grow in quantity, the consequences will be unimaginable."
