Survey in the Yangtze River Delta: *** “Ten Lian Yang” textile companies that are not in disorder are more worried about rising costs

In the first trading day of 2011, the inter-bank exchange rate for the Chinese yuan against the U.S. dollar was reported at 6.6215, marking a significant rise that continued for ten consecutive days—reaching its highest level since the exchange rate reform in July 2005. While this trend has sparked some concern, it pales in comparison to the sharp appreciation seen in September and October of the previous year. Despite this, many export-oriented businesses in Ningbo, including over 10,000 companies, have shown a more composed attitude toward the fluctuating exchange rate. At the heart of this calm is the proactive strategy adopted by companies to manage currency risk. “Based on the current spot exchange rate, even a 0.6% fluctuation could result in a $12,000 loss on a $2 million order,” said Xu Zhe, general manager of Ningbo Textiles Import & Export Co., Ltd. “But because we locked in the forward exchange rate at the beginning of the order, we’re now better prepared for any potential changes.” According to recent data, the yuan appreciated by 3.01% in 2010, with the pace of appreciation accelerating after the second exchange rate reform in June. For businesses with low profit margins—especially those below 5%—this has created significant challenges. However, many companies are now learning to anticipate these fluctuations by monitoring key events, such as major China-U.S. conferences, and using forward contracts to secure favorable rates before orders are finalized. Wu Chen from the Fund Business Division of Bank of China’s Ningbo Branch explained that firms are increasingly adopting forward settlement methods to mitigate risks. “We’ve noticed that the yuan tends to appreciate ahead of major international events, so locking in rates early has become a common practice.” As of November 2010, Ningbo’s total import and export volume reached $75.047 billion, reflecting a 38.4% year-on-year increase. Exports alone rose by 36.8%, making the city one of the top performers in foreign trade under separate planning. Looking ahead, analysts predict that the yuan will continue to appreciate, driven by global economic shifts and political developments. Mao Xinbin from the City Foreign Economic and Trade Bureau noted that while the annual appreciation of 3% may seem modest compared to other Asian countries, factors like Brazil’s growing concerns about China’s exchange rate policy and the upcoming visit by Brazil’s president could intensify pressure on the yuan. Experts believe the yuan is entering a long-term appreciation phase, with market expectations already suggesting a potential 5% rise in 2011. As a result, companies are not only relying on financial instruments to hedge against exchange rate risks but also rethinking their order management strategies. Ding Ying, general manager of Taiping Bird Import & Export Co., Ltd., emphasized the importance of timing. “The production, transportation, and settlement cycle for textiles usually takes 2 to 3 months. We limit our order acceptance period to no more than six months, ensuring that we carefully calculate costs and profits to minimize losses.” While exchange rate volatility can be managed through financial tools, companies still face broader challenges. Rising raw material prices—such as gold, oil, and non-ferrous metals—have significantly increased operational costs. Inflation has also led to higher living expenses, contributing to a labor shortage that is difficult to resolve quickly. Analysts suggest that overcapacity in many industries has pushed companies to invest in non-productive areas, such as commodities and real estate, despite government efforts to control inflation. With ample liquidity in the market, the pressure on both company costs and employee wages remains a persistent challenge. As the yuan continues its upward trajectory, businesses must remain agile and adaptive to navigate the evolving landscape of international trade.

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