What will happen to exports?, RMB continues to weaken demand | RMB | exports

On June 26th, the offshore renminbi fell below 7.23 against the US dollar, setting a new low since November last year, with a intraday drop of over 150 basis points. The spot exchange rate of the Chinese yuan against the US dollar fell below the 7.20 mark at the beginning of trading on the 26th, and then further declined, falling consecutively below the 7.21, 7.22, and 7.23 marks, with a drop of over 350 basis points during the day.

Since the beginning of this year, the spot exchange rate of the RMB against the US dollar has depreciated by about 4%, and the offshore RMB against the US dollar has fallen by about 4.5%.

The continuous decline of the renminbi will undoubtedly give Chinese made prices a greater advantage and will also increase corporate profits in the short term. Under the trend of global demand contraction and slowdown in foreign trade growth, what trend will China's exports show due to the depreciation of the renminbi?

Profit increase and accelerated ordering

"For orders that have just been shipped but have not yet settled foreign exchange, profits will definitely come in handy." The head of a clothing and textile foreign trade enterprise in Anhui Province told First Financial that this will indeed alleviate the severe foreign trade situation to a certain extent, and foreign merchants will also increase their willingness to purchase. However, the market downturn remains the decisive factor, and there is currently a clear shortage of follow-up orders.

However, the following three to four quarters will be the traditional peak season for foreign trade. In his view, even if the peak season is not strong, orders will still increase compared to the first half of the year.

"It will definitely have an impact, customers have placed orders faster." Ma Tongwei, General Manager of Shandong Ruitu Laser Technology Co., Ltd., told First Financial that their recent exports have increased by about 30% year-on-year. Customers are placing orders faster. However, due to the high-speed growth period of the Chinese laser equipment sub industry, the 30% growth is still lower than expected in Ma Tongwei's view.

Liu Mingyang, General Manager of Yiwu Ouchi Import and Export Co., Ltd., told First Financial that the company's recent export growth has reached about 40%, and the depreciation of the RMB has indeed made the prices of Chinese exported products cheaper. However, the driving force for growth is not primarily due to exchange rates. If we want to estimate the impact of this downturn on order growth, he believes it is about 3% to 5%. The driving force for growth also lies in leveraging cross-border e-commerce and big data to find high cost-effective products that the market needs.

Shrinking demand and "internal competition"

The weakening of the renminbi will bring short-term benefits, but ultimately, market demand and industry competition will determine the quality of foreign trade business.

The head of an "invisible champion" company in the kitchenware industry in Ningbo told First Financial that this is definitely a good thing for the profit of orders, but there is no substantial benefit for the company to obtain orders.

He pointed out that the impact of interest rate hikes in the United States is very significant, and consumers in Europe and America are starting to choose to save more like Chinese people, resulting in overall sluggish consumption. In the context of shrinking market cake, the "internal competition" of China's supply chain has become increasingly fierce. Some overseas e-commerce platforms in China are full of low price competition, which has forced many Chinese brands who are trying to pursue quality and are in the process of transformation and upgrading to be caught up in vicious competition and lose their advantages. "It is the fierce competition among Chinese people that many small and medium-sized businesses are actually operating at a loss in the European and American markets, breaking the original market rules.".

Since the beginning of this year, the export of children's clothing in Zhili Town, Huzhou, Zhejiang Province, known as the "capital of children's clothing in China", has surged against the trend. At the third China Children's Fashion Week in June, the official announced that the total foreign trade exports of the entire town in the first five months of this year were 8.637 billion yuan, a year-on-year increase of 143.57%, of which the total export of children's clothing was 800 million yuan. However, the relevant person in charge of the Huzhou Municipal Bureau of Commerce told First Financial that the export growth of Zhili Town is greatly influenced by market procurement factors, and the specific reasons need to be analyzed by dividing the data equally. At present, the situation is not optimistic, and there may be a 20% drop in June.

In the downward trend, the person in charge believes that the impact of exchange rate factors is minimal.

▲ The "capital of children's clothing" has entered the peak season of production and marketing. On May 10, in the production workshop of a clothing company in Zhili Town, Wuxing District, Huzhou City, workers produced children's clothing on the assembly line. Xinhua map

Industry insiders in the Pinghu luggage industry in Jiaxing also told First Financial that most local luggage enterprises are mainly focused on exports, and recently exports have slowed down significantly, especially in the European and American markets. Therefore, the pressure in the second half of this year is not small. "The overall market situation in the second half of the year is not optimistic, and the overall orders are not very sufficient at present.".

Regarding exchange rates, foreign traders have a greater desire for stability rather than volatility.

"The most feared thing is up and down." As the Deputy General Manager of Zhejiang Ginza Luggage Co., Ltd., Jin Chonggeng believes that the depreciation of the RMB is good for enterprises in the short term, but it is not necessarily in the medium to long term. A stable exchange rate is always the most anticipated by foreign traders.

With the easing of the epidemic, the luggage industry has experienced a strong rebound, with orders for Ginza bags increasing in double digits year-on-year. However, they will still lock in some funds. Due to the two legs of domestic sales and foreign trade, Jin Chonggeng said that during the period of export slowdown, they have felt a relatively good recovery in the domestic demand market. "At present, the domestic demand market for luggage is about to enter the peak season.". They also plan to rely more on domestic trade this year.

Periodic turbulence may also intensify

In terms of exchange rate fluctuations, Tan Yaling, an independent economist at the China Foreign Exchange Investment Research Institute, believes that the recent decline of the renminbi has been relatively fast, showing obvious polarization, deviating from China's economic fundamentals, and "the economic fundamentals are recovering.". The exchange rate fluctuations did not match expectations. At this time, the stability of the exchange rate is crucial for promoting both exports and imports.

In her view, the depreciation of the Chinese yuan is a favorable indicator for exports, but compared to others, there will be significant confusion between current orders and future expectations, making it difficult to truly promote exports.

"The pattern of RMB appreciation has been broken." Tan Yaling analyzed that the trend of downward trend has not changed, and the periodic turbulence may further intensify. So, people still need to adjust their emotions and view the prospects and trends of the RMB market based on China's national conditions, economic development, and the demands of enterprises.

After the export growth rate returned to double digits in the first four months, China's foreign trade growth rate has recently declined, and the market is not very optimistic about the future trend of foreign trade.

According to customs statistics, the total import and export value of China in the first five months of this year was 16.77 trillion yuan, a year-on-year increase of 4.7%. Among them, exports reached 9.62 trillion yuan, an increase of 8.1%; Imports reached 7.15 trillion yuan, an increase of 0.5%; The trade surplus reached 2.47 trillion yuan, expanding by 38%. In US dollars, China's total import and export value in the first five months of this year was 2.44 trillion US dollars, a decrease of 2.8%. Among them, exports reached 1.4 trillion US dollars, an increase of 0.3%; Imports reached 1.04 trillion US dollars, a decrease of 6.7%; The trade surplus was 359.48 billion US dollars, expanding by 27.8%.

Compared with the data from the first four months, the growth rate of imports and exports has declined by 1.1 percentage points. The decline in growth rate is mainly affected by the slowdown in export growth - exports that returned to double-digit growth in the first four months, and growth rates in the first five months contracted to single digits. From May alone, China's exports decreased by 0.8%. In US dollars, China's exports decreased by 7.5% year-on-year in May this year.

Wei Jianguo, former Vice Minister of the Ministry of Commerce and member of the Senior Expert Advisory Committee of the China International Economic Exchange Center, publicly stated on June 19 that the current decline in exports is not due to China's inability to engage in foreign trade. The most crucial thing is still countercyclical. Last year, due to the Federal Reserve's interest rate hikes, retail prices in the United States increased, and demand from the general public decreased. Some large retail and online shopping platforms such as Wal Mart and Amazon failed to sell a large number of goods, which led to the failure of "nine gold and ten silver". There was no satisfactory "retaliatory consumption" at Christmas, so there was a lot of inventory. This also led to a decrease in orders in March and April this year, reflecting a decline in foreign trade throughout May. However, this is temporary, and once the entire inventory peak disappears, there will still be a large number of orders.