The renminbi exchange rate has depreciated for 7 consecutive weeks, approaching the 6.6 yuan mark
Ding! After a short message prompt sounded, Xu Dong, the manager of a wool textile export factory in Shandong, recently received the settlement of a foreign trade order at the beginning of this year, and he was very happy. Because, due to the continuous appreciation of the U.S. dollar, this order worth 100,000 U.S. dollars earned an extra 50,000 yuan. "Last year the U.S. dollar continued to depreciate, making the profits of many foreign trade companies thinner. Therefore, the recent appreciation of the U.S. dollar and many foreign trade companies have begun to settle foreign exchange at this time." Xu Dong told a reporter from China Times.
Since February, the previous significant appreciation trend of the RMB has been reversed. As of April 2, the last trading day before the Ching Ming Festival holiday, the closing price of the onshore RMB against the US dollar fell to 6.57. According to the latest data, on April 9, the central parity of the renminbi against the U.S. dollar rose 54 basis points from the previous trading day to 6.5409.
The renminbi's "unstoppable falling" trend continues. On April 9, the onshore RMB exchange rate against the U.S. dollar was reported at 6.5526. At the same time, the offshore RMB exchange rate against the U.S. dollar was reported at 6.5668. In the three trading days from April 7, the offshore RMB exchange rate dropped by 143 points. That is, the offshore renminbi has depreciated by 0.23%.
Tan Yaling, president and chief economist of the China Institute of Foreign Exchange Investment, said that half of my country's foreign trade exports are supported by private enterprises, of which most are small and medium-sized enterprises, and their ability to withstand market risks is relatively weak. After the RMB exchange rate against the US dollar broke through 7.1 at the end of May last year, the RMB appreciated all the way, which caused the export profits of many foreign trade companies to be swallowed up by the exchange rate.
In this regard, Liang Ming, director of the Foreign Trade Research Institute of the Ministry of Commerce, also believes that due to exchange rate changes and the appreciation of the renminbi, companies’ exports will face very high competition, and it may be difficult to sell many commodities. This is also one of the current issues affecting my country’s exports. Very critical factor.
Therefore, the devaluation of the renminbi can ease the export pressure of foreign trade companies in the short term and expand the export share.
The renminbi "falls endlessly"
From the end of May last year to February this year, the closing price of onshore RMB against the US dollar rose sharply from a minimum of 7.13 to a maximum of 6.43. However, after entering mid-February, the RMB began to depreciate mainly because of the continued appreciation of the U.S. dollar.
On March 30, the central parity of the RMB against the US dollar reported 6.5641. The central parity of the RMB against the US dollar, the spot market, and the offshore market all hit a new low since December 2020. Since December 2020, the onshore renminbi has been as high as 6.4236. In four months, US$100,000 has appreciated by about 14,000 yuan.
According to the market trend chart, from January 7th to April 8th for more than 3 months, the US dollar index rose by 2613 points, that is, the US dollar appreciated 2.92%. On the other hand, the offshore renminbi exchange rate has fallen by 1,517 points from February 16 to more than a month ending on April 9, that is, the offshore renminbi has depreciated by 2.36%.
Liang Ming told our reporter that from the perspective of China as a whole, the appreciation of the renminbi will affect export competitiveness. The Chinese export prices expressed in foreign currencies are increasing, which is equivalent to Chinese goods becoming more expensive, and this will ultimately be reflected in the decline in price competitiveness.
Therefore, this round of RMB devaluation is undoubtedly good for export companies. Li Jian, a well-known macroeconomic analyst, told this reporter that for companies, changes in the RMB exchange rate have both advantages and disadvantages. When the renminbi depreciates, some industries will directly benefit when their export orders denominated in US dollars are converted into renminbi. For example, for every 1% depreciation of the renminbi, the net profit margin of the traditional textile and apparel export industry will increase by 2%-5%. However, some companies do not want the devaluation of the renminbi. Taking airlines as an example, companies in the industry often have a large amount of USD debt, and the devaluation of the renminbi means that the cost of their debt will rise.
Xu Dong told reporters that July to October is the peak season for their company’s export. Under normal circumstances, the settlement time is usually one month or 45 days behind the shipment time, so their order profits last year were not high. Although prices have risen, profits have decreased.
"Furthermore, foreign businessmen are becoming more and more savvy. When the RMB depreciates, they require a change in the purchase price as soon as the exchange rate fluctuates, but as soon as the exchange rate rises, they do not rush to adjust the price. In the end, it is foreign trade companies that hurt." Xu Dong said .
A person from a banking industry in Nanjing told this reporter that due to the obvious appreciation of the renminbi last year, many business owners would immediately go to the bank to handle the forward foreign exchange settlement business to lock in the foreign exchange settlement price after signing an export contract. But this phenomenon has changed recently. Due to the expected depreciation of the renminbi against the U.S. dollar, the original popular forward foreign exchange settlement business has become much worse than before.
Regarding the trend of the RMB exchange rate in the later period, CITIC Securities clearly believes that the US dollar and U.S. bond yields are based on two major factors. The U.S. dollar has strong support under the influence of fundamental expectations, monetary policy signals, and weighted currencies. At the same time, U.S. bond interest rates are expected to rise. There is a high probability that it will be the trend throughout the year, and it is expected that the RMB exchange rate will fall back to above 6.6 in the second quarter. Regarding the possible impact of the depreciation of the RMB exchange rate, the RMB has the attribute of risky assets to a certain extent, and it should be prevented that the depreciation of the RMB exchange rate also brings risks of domestic risk asset adjustments.
How do companies deal with exchange rate risks?
Nowadays, two-way renminbi fluctuations have become the norm.
On April 7, Guan Tao, former director of the International Balance of Payments Department of the State Administration of Foreign Exchange and chief economist of Bank of China Securities, stated in an article in the Economic Information Daily that the recent fall in the RMB exchange rate is still a healthy and normal adjustment, reflecting The RMB exchange rate has entered a new normal of two-way fluctuations. Guan Tao also pointed out that two-way fluctuations can help alleviate the financial pressure on domestic enterprises caused by continuous unilateral appreciation.
"The appreciation of the exchange rate will indeed have a great impact on some low-profit enterprises, especially the seven types of labor-intensive commodities that we often mention, namely textiles, clothing, luggage, shoes, toys, furniture, and plastic products. They are usually small-profit commodities, and their profits are inherently very low, so they are easily covered by the extent of exchange rate fluctuations; on the other hand, it also depends on whether the manufacture of such export commodities involves the import of some parts and components. When the RMB appreciates If the manufacture of a certain export product requires a large amount of imported parts and components, the change in the exchange rate is good for the industry. But conversely, if some companies’ products are purely domestically produced, they are also labor-intensive companies with small profits. , Then the impact on them is undoubtedly very large." Liang Ming said.
In this context, it is understood that the Ministry of Commerce has issued some foreign trade companies' exchange rate hedging business manuals, reminding everyone to use some existing exchange rate hedging tools to further avoid risks.
In this regard, Yan Ming, the foreign exchange risk control manager of Shougang Group Co., Ltd., said that under the new normal of the RMB exchange rate, the exchange rate risk management of enterprises is completely different from before. At present, the RMB exchange rate fluctuates in both directions and the annual volatility becomes larger. Under this circumstance, companies will face the risk of exchange rate fluctuations whether they purchase or settle foreign exchange. The spokesperson of the State Administration of Foreign Exchange has repeatedly emphasized that companies should adapt to the normal state of two-way fluctuations in the RMB exchange rate, turn the uncertainty of two-way fluctuations into certainty through hedging, and concentrate on doing a good job in their main business. Therefore, companies need to have a clear understanding of the risks of foreign exchange fluctuations they face, and take measures to prevent and control exchange rate fluctuations while mastering the characteristics of foreign exchange fluctuations.
In addition, the current use of cross-border renminbi to collect payments has also become a response strategy considered by many foreign trade export companies. The industry believes that the most direct and main benefit of using cross-border RMB to receive payment is the ability to avoid exchange rate risks. In addition, cross-border renminbi can also save exchange costs and trade financing costs, thereby reducing financial costs.
With the steady development of my country's import and export trade, trading partners may also increase their holdings of RMB when conducting trade settlements with my country. Statistics show that 29 countries, including Russia, Iran, Turkey and Venezuela, have gradually switched to the use of RMB in trade settlement or investment. Among the 29 countries, 13 countries including Vietnam, Kazakhstan, South Korea and Malaysia will import more than 520 billion yuan of textiles from my country in 2020.