RMB Breaks 6.78, Textile Exporters Face Profit Squeeze

On July 3, 2026, the onshore RMB closed at 6.7804 against the USD, up 62 points from the previous session, with the midpoint at 6.8047—the highest since February 2023. For the textile industry, this means a direct hit to export margins: every 1% appreciation reduces the RMB value of dollar-denominated orders by roughly 1%.

Dual Pressure from Exchange Rate and Liquidity

The PBOC conducted 63 billion yuan in 7-day reverse repos at a steady 1.40% rate, but with 231.5 billion yuan maturing, net withdrawal reached 168.5 billion yuan. The weekly net withdrawal hit 1.587 trillion yuan, as 2.2665 trillion yuan in 7-day and 900 billion yuan in overnight reverse repos matured, against new injections of only 678.5 billion and 900 billion yuan.

This 'volume reduction, rate stabilization' signal is clear: the central bank is not injecting liquidity while the currency appreciates. For textile firms, this means export proceeds shrink in RMB terms while domestic borrowing costs do not ease—a two-sided squeeze.

Transmission to Textile Exports

RMB appreciation directly hurts dollar-denominated textile exports. Industry data shows China's textile and apparel exports in H1 2026 were about $150 billion. If the average annual rate moves from 7.0 to 6.8, the sector loses roughly 30 billion yuan in book revenue.

Price competitiveness is the bigger concern. When competitors like Bangladesh and Vietnam see their currencies depreciate against the dollar, Chinese quotes become relatively more expensive, prompting buyers to shift orders. This is not theoretical—during past rapid RMB appreciation cycles, fabric mills in Keqiao and Shengze saw clear order declines.

Industrial Belt Reactions

From Keqiao's light textile city to Shengze's silk market, exporters report fewer inquiries, especially for long-term and large orders. A polyester fabric mill owner noted profit margins on new contracts have dropped from 5% to around 2% since late June, forcing them to abandon some low-margin orders.

At the same time, the PBOC's net withdrawal has slightly pushed up interbank rates, raising the cost of bill discounting for SMEs. Cash-strapped small mills are feeling the pinch. Some are trying forward contracts to lock in exchange rates, but bank spreads are widening, making hedging expensive.

Practical Recommendations

For Exporters - Immediately assess FX exposure on existing orders due within 3 months; use forward contracts or options to lock in rates rather than gamble on direction. - Revise quotation mechanisms to include a currency fluctuation clause: if the rate moves more than 1%, both sides renegotiate price. - Shorten receivable cycles to reduce USD exposure; consider switching part of settlement to EUR or RMB to diversify risk.

For Buyers - Use the window of stronger RMB purchasing power to negotiate long-term contracts priced in RMB with domestic suppliers, avoiding USD volatility. - Check the financial health of smaller mills—prioritize suppliers with sound cash flow and hedging practices to avoid delivery delays or quality issues. - Request dual quotes (RMB and USD) from suppliers and choose the more favorable settlement currency.