Yuan revaluation: China yield to buyers demand
 Finally, China has revalued its currency. The sudden, though not unexpected, appreciation of yuan was the result of mounting pressure from the global economic giants, which forced China to end the US Dollar-Yuan peg. On July 21st, the People's Bank of Chi...more
by Textile Excellence
Monday, 01st August 2005View more news from [ Mumbai ] [ India ]Finally, China has revalued its currency. The sudden, though not unexpected, appreciation of yuan was the result of mounting pressure from the global economic giants, which forced China to end the US Dollar-Yuan peg. On July 21st, the People's Bank of China announced a moderate revaluation of the Yuan. China has pegged its currency to the dollar in 1994, which has resulted in a fixed exchange rate of 8.28 yuan to the US dollar. This "hard peg" policy has come under criticism by the western countries and complained that this practice unfairly assists Chinese exports. According to financial experts, Yuan is almost 30-40 percent undervalued! The People's Bank of China's announcement of 2.1% appreciation of the yuan will bring the exchange rate to 8.11 yuan to a US Dollar now and as announced it would be now managed to fluctuate by 0.3% against the dollar in daily trading while moving up or down in a wider band of 1.5% against a basket of other currencies. This step has been appreciated by the west but has been challenged for being too small and expects more adjustment over a longer time framework. What this biggest economic event this year, means to Textile business in China as well as to other prospective beneficiaries?
The very first impact is that Chinese Textile and Clothing exports would miss 2.1% price advantages against other competing courtiers like India, Pakistan, and Bangladesh etc. Now, if Chinese sellers absorb the impact of this
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| among them, their profit margin would shrink. Otherwise, if Textile and Clothing prices are increased, they would sell lesser volume. Experts have evaluated that if the Yuan appreciates by 1%, benefits reaped by Chinese Textiles exporters will decline 6 - 10% or more as Chinese products lack value addition. According to initial estimates by the industry, for each 1 per cent appreciation of the Yuan, cotton Textile sector would see significant reduction in export profit of 12 per cent, 8 per cent in wool, and 13 per cent in garments. However, some segment of the industry feels that Chinese products have room for increasing price and would not hit that adversely as discussed. The second impact is that the Chinese industry would become more dynamic and thrive hard to reduce cost of labor, raw material and add value to products. In fact, as China is a large importer of cotton and polyester fiber intermediates, after the appreciation of currency, prices of raw materials are expected to come down.
Amidst the wide speculation over the Yuan revaluation, Textile industry remains as the point of focus for being the first receiver of the shock. The actual impact would be visible in the coming months, but if Yuan appreciates further, Chinese Textile industry would have to bear difficult situation, which would benefit the nearest competing Textile manufacturing nations. China had no options other than succumb to the pressure of US and EU that threatened with economic restrictions of much larger magnitude otherwise. 
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