Especially in recent years, the textile and clothing industry has ushered in a “warm wave”, but it also has side effects.
The more orders we have, the more money we will lose
“For several months, we have been working overtime to produce. We are glad that orders have increased significantly. However, the sharp appreciation of the RMB has shrunk our profits by a large amount. The more orders and good revenue a company has, the more serious the losses will be. Who can bear this?” On November 27, a Zhejiang textile company was responsible for Li Yong complained bitterly to reporters.
On November 18, the central parity rate of the RMB exchange rate in the inter-bank foreign exchange market rose to 6.5593 yuan per US dollar, officially opening the “6.5 yuan era.” At the same time, the onshore and offshore RMB exchange rates against the US dollar have successively hit new highs in the past two and a half years. Compared with the low of 7.1765 yuan onshore RMB against the US dollar on May 27, the RMB has risen by more than 6,000 points, an increase of 8%.
But this is not the highest point of the RMB. Zhu Haibin, chief China economist at JPMorgan Chase, predicts that the RMB exchange rate is expected to rise to around 6.25 next year.
Towards the end of 2020, China’s foreign trade surplus hit its highest value on record, exceeding US$75.4 billion in November. Behind this figure was 21.1% of that month’s The export growth rate was still negative in May.
China’s foreign trade situation has reversed within half a year. In June 2020, the General Office of the State Council also issued a document supporting export products for domestic sales. The bailout of foreign trade companies was a topic at the time. .
How did the comeback happen?
Data shows that the “turnaround” of the textile and apparel industry will mainly occur in the second half of 2020. Data show that from January to August, the national textile and apparel export volume was US$187.41 billion, a year-on-year increase of 5.6%, and the growth rate was 1.3 percentage points faster than that from January to July. In the month of August, the national textile export volume was US$14.72 billion, a year-on-year increase of 47%; the clothing export volume was US$16.21 billion, a year-on-year increase of 3.2%, achieving positive monthly growth for the first time this year. Since May, the number of orders for fabrics and textile raw materials in China has increased by more than 100%; the number of orders in the clothing industry has increased by more than 200% year-on-year, and the clothing industry has tripled its growth in July.
The reason for this is that on the one hand, the peak season for foreign trade has arrived; on the other hand, many overseas orders have been rapidly transferred from India and other countries to domestic production recently. Many large export-oriented textile companies in India are unable to guarantee normal delivery due to the epidemic. Many orders originally produced in India have been transferred to my country for production, among which the order volume for towels, bed sheets and other products is relatively large. For example, Luo Liangjian, the owner of Gide Leather Co., Ltd., said that the company received a batch of orders to be transferred to India in August. Because the epidemic in India was severe, customers did not dare to produce there, so they chose to hand over the orders to his company in Shandong. factory produced. In addition to home textile orders, some other foreign orders in the textile industry have also been transferred to domestic production. Luo Liangzhen’s company mainly produces handbags, luggage, belts and other products. Around August, a customer suddenly gave the company many orders that were originally in India, mainly wallets and handbags.
China’s textile and garment industry’s foreign trade experienced “unexpected” growth in 2020. However, behind this is the embarrassment that it is difficult for companies to make profits.
Although there are positive aspects such as the signing of RCEP and new progress in foreign vaccines, there are still many The owner of the textile company said that due to the devaluation of the US dollar and the increase in shipping prices, there is not much profit left.
Currently, the production capacity of overseas factories has shrunk significantly due to the epidemic, resulting in strong demand for Chinese products around the world. There are many orders, but revenue and profits have shrunk significantly between changes in interest rates. This is a huge impact on the company.
Li Yong recalled that starting a few months ago, the foreign trade orders flowing into the country suddenly increased significantly, and almost all companies received new orders that exceeded expectations. . This is a huge benefit for companies that are recovering from the epidemic.
“When there are orders, there will be production, and production companies will regain their vitality. At the beginning, the orders were only small. In recent months, the order volume has increased significantly, and we are almost working overtime to catch up on the orders.” Li Yong said.
Especially in May 2020, the exchange rate of RMB against the US dollar reached a low point. According to estimates, Li Yong’s business revenue has increased approximately three times in recent months.
But in the following days, Li Yong watched the RMB rise all the way, and the US dollars lying in his bank account continued to shrink. This was unacceptable to him.
“The RMB exchange rate has fluctuated too much in 2020. Although it is basically based on the long-term exchange rate now, it reached an agreement at the high point and now reaches the low point of the US dollar. It will still have an impact on enterprises,” Li Yong said.
Lianfa Co., Ltd. is a full-industry chain textile enterprise integrating spinning, dyeing, weaving, finishing and garment making. The company previously responded on the Huayi platform: It is true that European and American retailers have transferred Indian textile orders to my country for production, but the company’s main(Freight) model, a container used to cost more than 3,000 euros, but now it has become more than 7,000 euros. The freight accounts for 22% of the value of the goods. This is terrible, and it has already caused serious losses. “The person in charge of the aforementioned home textile company told reporters that the home textile industry is inherently low-profit, with gross profit between 10% and 15%, and net profit in normal years only 3% to 5%. “Even the FOB model is difficult for customers. , it is actually difficult to pass on the cost of growth to consumers, because retail prices dare not increase too much. ”
It is difficult to increase retail prices. Similarly, the increase in ex-factory prices of enterprises is also limited. Even so, Wang Qijun introduced that the price of products was still increased by 2%. To 6%, most are two or three points. “Especially as the exchange rate has risen in recent months, if prices are not raised, the impact on profits will be obvious. ”
For the Vosges Group, which adopts the FOB model in most cases, the factor that “eats up” profits comes more from the appreciation of the RMB.
“The thin profits in the second half of 2020 are mainly due to the exchange rate. The rise in the exchange rate directly ‘ate up’ seven or eight points of our profit. In the second half of the year, we suffered losses due to the rise in the exchange rate. About 50 million yuan. “The person in charge of the aforementioned home textile company also lamented, “The currencies of our competitors are all depreciating. For example, Turkey is a competitor of high-end products. In the past three years, the exchange rate against the US dollar has depreciated from more than 3 points to 7.8. ”
After breaking through the 7 mark in mid-2020, the RMB exchange rate against the US dollar has now risen to close to 6.5.
“Profits have basically been swallowed up by rising shipping costs and the appreciation of the RMB. In addition, cotton prices have increased by about 20% from the lowest point in March and April 2020. We are doing it hard, especially at the end of the year. Two months was like riding a tiger with difficulty. Most of our orders come from large and old customers. It’s good to have orders during the epidemic. We also need to keep the business running and feed the workers, which is also to maintain long-term customer relationships. “The person in charge of the company said that the cycle of receiving orders in the industry is about two months, and the company does not know the trend of the exchange rate when accepting orders.
He Said, “The entire fourth quarter of 2020 was basically in a state of low profit or loss, and even the more we exported, the more we lost. ”