According to the China Foreign Exchange Trade System, the central parity rate of the yuan against the US dollar on May 17 was 6.8859, down 171 basis points from the previous day.
That's one of the smaller moves in recent memory. On May 13, the offshore RMB depreciated and lost the 6.90 mark, falling more than 550 basis points in the day, hitting a new low since December last year. The onshore RMB closed at 6.8721, depreciating 603 points.
"Unexpectedly, the offshore yuan fell below 6.9 to the dollar in a flash." The person in charge of a textile and foreign trade enterprise was amazed at this.
According to the general understanding, the depreciation of RMB will enhance the international competitiveness of export products. On the basis of the unchanged order price, enterprises can obtain higher profits through the exchange rate difference.
But in fact, the impact of depreciation on foreign trade enterprises is more subtle, not entirely a positive pull effect.
For the above foreign trade enterprises, since the highest strike price of forward settlement of foreign exchange set by the enterprises at the beginning of the year is 6.85, if the enterprises settle foreign exchange at this price, they will bear exchange loss of more than 300 basis points. Companies had to rush to settle all forward agreements and "earn more renminbi" by settling at market prices.
For small and micro enterprises, when the exchange rate fluctuates, they can only take short orders instead of long ones. Due to the weak bargaining power of small and micro enterprises, the good exchange rate of short orders will be almost all "eaten".
"We prefer a stable exchange rate rather than a sharp depreciation of the renminbi." The above - mentioned person in charge of textile and foreign trade enterprises told "China Times" reporter.
Tangled foreign trade enterprises
In recent years, the plummeting exchange rate has wiped out all the gains made this year.
Before that, the offshore yuan closed at 6.8776 and hit a high of 6.8944 on January 3, 2019; On May 6, the offshore RMB lost the 6.82 mark, depreciating by more than 600 points within the day;
On May 7, data from the China Foreign Exchange Trade System showed that the central parity rate of the RMB against the US dollar was 6.7614, down 270 basis points from the previous trading day, hitting the lowest level since February 19.
On May 13, the offshore RMB depreciated and lost the 6.90 mark, falling more than 550 basis points in the day, hitting a new low since December last year. The onshore RMB closed at 6.8721, depreciating 603 points.
For some large textile and foreign trade enterprises, the depreciation of the renminbi has brought more profits for orders settled in US dollars. For example, the value of a box of exported clothing is $50,000, which used to be converted into about 310,000 yuan. After the exchange rate change, it becomes 321,000 yuan, an extra 11,000 yuan for doing nothing. If the order of hundreds of thousands of dollars or even millions of dollars, the exchange income is up to hundreds of thousands of yuan.
In the face of questions from investors, the board secretary of a listed company said bluntly that the company's export products are settled in USD, raw materials are purchased domestically, and the depreciation of RMB will be beneficial to the company. At the same time, a number of export enterprises, such as Jiaxin Silk, Chuangyuan Culture, and Intech Healthcare, were also affected by the depreciation of the renminbi and realized a rise against the market.
For many companies, however, the devaluation may not be so rosy.
"This round of renminbi depreciation has had a big impact on the company. Although it increases the competitiveness of export products, the depreciation also makes overseas customers hesitant to place orders. They think that the RMB will continue to depreciate, which also extends the order time and affects the transaction volume." Another textile foreign trade enterprise told reporters.
For example, when the exchange rate trend is clear, the past contract can be followed. However, after the depreciation of RMB, many customers have to renegotiate the price, and the negotiation time is greatly extended, which is normal for 10 days and half a month.
This is more common for small and medium-sized textile enterprises with weak bargaining power.
For large enterprises, in order to share the risk of exchange rate fluctuations, the forward settlement method is generally adopted, which makes it difficult for large enterprises to enjoy all the advantages in the depreciation of RMB. If future currency movements are unclear, companies could suffer.
The above foreign trade enterprises set the maximum strike price of forward settlement of foreign exchange at 6.85. In the context of RMB depreciation exceeding expectations, enterprises will bear exchange loss of more than 300 basis points if they settle foreign exchange at this price. It will not only not enjoy the benefits of depreciation, but also bring losses.
"Compared with depreciation, we prefer to keep the exchange rate stable. Depreciation may bring short-term benefits to some enterprises, but in the long run, China's foreign trade enterprises can not get more benefits from it." Above - mentioned textile foreign trade enterprise person - in - charge said.
In fact, the depreciation of the renminbi will also have a significant impact on imports, creating imported inflation. China is currently dependent on imports of oil, agricultural products and other commodities, and a real devaluation would lead to higher domestic prices for food, oil and other commodities, leading to an era of high inflation.
For small and medium-sized enterprises, raw materials are all dependent on imports, and the soaring price of raw materials will lead to a surge in production costs, which will make it more difficult for small and medium-sized enterprises to survive.
Will the Yuan break 7?
In the view of market participants, the depreciation of the renminbi or the embodiment of sentiment.
"From the fundamental point of view, the escalation of the trade conflict between China and the United States is a direct trigger for the depreciation of the exchange rate, and the same happened last year. However, the current economic fundamentals' gap 'between China and the United States has narrowed, the Federal Reserve has also suspended interest rate hikes, and the depreciation pressure of the renminbi has not risen significantly." Everbright macro research report shows.
In the context of rising global trade protectionism, trade uncertainty and exchange rate fluctuations have become the biggest concern of enterprises. At present, there are still uncertainties in the trade negotiations between China and the United States, and the exchange rate of RMB against the US dollar again fluctuates greatly, which is also an important challenge that foreign trade enterprises have to face.
However, in Everbright Macro's view, the yuan exchange rate may fluctuate at current levels in the short term, but it is unlikely to break through 7, and once the economic and trade relations between the two countries ease, the yuan may appreciate slightly.
"There is no room for substantial appreciation or depreciation of the renminbi. On the one hand, the renminbi and the dollar are two sides of the same coin, and recently the US economy has been consistently weaker than Europe's. The shock of the US dollar is strong, but it lacks the momentum of sustained and substantial upward movement. Therefore, the RMB exchange rate has periodic and relatively limited depreciation pressure.
On the other hand, the RMB exchange rate may be more flexible under external shocks, and mechanical commitment to maintain the stability of the RMB exchange rate is less desirable. A review of history shows that export slowdown is a powerful factor forcing China to accelerate reform and adjustment. The export slowdown requires a more flexible exchange rate." "Moneta researcher Zhengsheng Zhong said.
Analysts are divided on the future direction of the exchange rate. Many people in the industry generally expect that the risk of depreciation of the RMB this year is still controllable. As long as the domestic economy does not experience major fluctuations, the RMB will not be strong against the US dollar this year, but it will not depreciate significantly. There are also views that the RMB exchange rate should be devalued in the current trade war.
In the eyes of some foreign media, the sharp depreciation of the RMB is a "counterattack" to the trade friction between China and the United States. However, earlier at the Boao Forum for Asia, Yi Gang, governor of the People's Bank of China, said China would not devalue its currency in response to trade disputes.
"China's monetary policy focuses on the domestic macroeconomic situation and serves the real economy. The exchange rate mechanism of our country is decided by supply and demand. It is a market-determined mechanism. It has worked well and will continue to work well in the future. China will not devalue its currency in response to trade disputes." "Mr. Yi said.