What impact did the three major financial events have on China's textile and garment export enterprises?

Recently, the issue concerning the internationalization of the renminbi has once again become the focus of attention in the textile and apparel manufacturing industries.

There are three reasons: First, on September 20, the People’s Bank of China issued an announcement authorizing the Bank of China’s New York branch to serve as the US’s RMB clearing bank. This not only marks a new level of financial cooperation between China and the United States, but also marks another important milestone in the process of RMB internationalization.

As the world's largest economy, the U.S. market has always been a battleground for military strategists. The establishment of the RMB clearing bank will further facilitate the use of the RMB in the United States and cross-border transactions, and promote the two-way trade, investment, and economic cooperation between China and the United States to a new level.

Second, on October 1, the renminbi was officially incorporated into the International Monetary Fund (IMF) Special Drawing Rights (SDR), paving the way for the internationalization of the renminbi. The RMB officially joins the SDR currency basket, which means that both the IMF itself and its 189 member states have theoretically recognized the RMB as a reserve currency.

Third, as industry and capital go out of the country through the “Belt and Road”, the internationalization of the renminbi also accelerates the pace of advancement. Experts pointed out that countries along the “Belt and Road” countries account for 60% of the world’s population and nearly 30% of the total economy. The “One Belt and One Road” strategy will help form the “RMB Zone” in the world’s longest-spanning economic corridor. .

For example, in December 2015, the renminbi was successfully held for the Somony exchange rate listing transaction. China’s Xinjiang and Tajikistan’s enterprises, individuals and banks can use their own currency and their counterpart’s national currency in trade settlements and other financial settlements. This is also an important symbol for Xinjiang’s active economic cooperation with Tajikistan to serve “going out” companies. .

For another example, in September 2015, the Kashgar region of Xinjiang successfully opened the exchange rate for the exchange rate between the renminbi and the Pakistani rupee, and held a launching ceremony at the Bank of China Kashgar Branch. This will not only provide convenient conditions for the settlement of NWFB trade and investment funds, but also effectively expand the channels for customer transactions and expand the scope of financial cooperation.

Boosting a stable overseas asset

According to the degree of internationalization, currency internationalization can be divided into three levels: as a means of accounting for international trade, as a tool for international investment and international lending, and as one of the currencies of foreign exchange reserves of other countries.

What proportion of the RMB will be included in the International Monetary Fund this time? SDR is a reserve asset and bookkeeping unit created by the IMF. Before the renminbi was added, it was mainly composed of four currencies: the US dollar, the euro, the yen, and the pound sterling. Their shares in the SDR currency basket were 41.9% for the US dollar, 37.4% for the euro, 11.3% for the pound, and 9.4% for the yen. After the renminbi entered, the share was 10.92%, and the share of the US dollar, euro, yen, and sterling was adjusted to 41.73%, 30.93%, 8.33%, and 8.09%, respectively, which was 0.17, 6.47, 3.21, and 1.07 percentage points lower than before. According to the IMF rules, the weight of the basket currencies in the SDR is not static. With the changes in the use of currencies in the global trade and financial sectors, the IMF has adjusted the share of each currency in the SDR every five years.

Regarding the positive role of the inclusion of RMB as an international reserve currency for the SDR and its impact on China's textile and garment export enterprises, Liang Yanfen made predictions from two aspects: “One is that joining the SDR means that the RMB has gained international recognition and the IMF's credit endorsement for China Textile. In terms of garment manufacturing industry, it has obtained new credit support and protection in international financing, which helps Chinese companies to obtain overseas financing. Second, joining SDR helps increase market confidence in the RMB, stabilize market expectations, and further expand the RMB The use of cross-border trade and investment settlement will be beneficial to the stability of the exchange rate of the renminbi, in particular, it will help China's textile and apparel companies to stabilize overseas assets."

Boosting two to reduce export costs

After the United States, the world’s largest economy, established a renminbi offshore center, its export advantages to Chinese textile and garment companies are reflected in several aspects.

The offshore RMB market is an important area for accelerating the internationalization of the RMB. It needs close cooperation between supply and demand before it can be established. The establishment of a renminbi offshore center in the United States requires the development of economic and trade relations between the two major powers in the United States and China. The stable, transparent, active and low-risk US offshore market and the smooth exchange of RMB onshore markets will help Reducing the risk of cross-border capital cross-border renminbi and turbulence in the domestic capital market will help reduce the cost of Chinese manufacturing exports.

The use of renminbi-denominated settlement will, to a certain extent, lower the transaction costs of textile and apparel exports, mainly as follows: First, it will accelerate the speed of export settlement and improve the efficiency of fund settlement. With the improvement of cross-border settlement support measures for RMB, the cross-border trade settlement process for RMB will be more convenient and efficient. The second is to avoid foreign exchange losses, save handling fees and foreign currency hedging costs.

Liang Yanfen pointed out in particular that stabilizing the external environment and strong financial conditions will become the biggest competitive advantage for Chinese textile and garment export enterprises.

However, it should also be noted that the current renminbi's valuation and settlement capabilities are very limited, and the US dollar, the euro, etc. are still important settlement currencies in China's textile and apparel exports. From the current point of view, the positive effect of the internationalization of the renminbi on exports of textiles and clothing has not yet been fully realized.

Boost three to reduce exchange rate risk

Prior to the implementation of the RMB cross-border foreign trade settlement pilot project, textile and apparel exports were all settled in foreign currencies, and export settlement activities were completed in two steps: export collection and foreign exchange settlement. With the use of foreign exchange pricing settlement, a large depreciation of foreign exchange in the short term will bring greater exchange losses to textile and apparel exports.

The internationalization of the renminbi will bring certain positive impact on textile and apparel exports, such as reducing exchange rate risk. However, this positive effect is limited by the extent to which textile and apparel exporting companies have pricing power in the export trade negotiations and the internationalization of the renminbi.

For this reason, China actively promotes the settlement of RMB in the “Belt and Road” countries. Xinjiang, Pakistan, and Tajikistan have bypassed the direct settlement of the US dollar. What are the advantages for Chinese textile and garment export enterprises? What are the conveniences? What are the driving forces for China's textile and garment companies to invest in countries along the Belt and Road initiative?

First, the “One Belt and One Road” is a grand strategy and a long-term strategy. The capital required for a construction project is huge and the construction period is long. Many countries along the “One Belt and One Road” are in economic difficulties and the political situation is unstable. To promote RMB settlement can at least avoid or reduce exchange rate risks. .

Second, for China's textile and garment manufacturing industries, it can also be aware of the risks and controllable risks, such as stable budget funds, capital payment, and transaction convenience.

Third, for the government, taking the RMB into the SDR as an opportunity to promote the bi-lateral and multilateral financial institutions such as the Silk Road Fund, the Asian Investment Bank, the China Investment Bank, and China’s equity participation in the European Bank for Reconstruction and Development, will use the RMB as the main investment and financing currency, and improve “ “One Belt, One Road” and international capacity cooperation in support of renminbi financing will further expand the use of the renminbi in two-way investment and foreign aid, which in turn will promote the use of renminbi pricing and settlement in major trading partner countries.

It can be seen that the use of renminbi-denominated settlement has relatively reduced the pricing cost brought by foreign exchange rate fluctuations. It can lock prices once in trade negotiations and avoid corresponding exchange losses.

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