The onshore RMB exchange rate closed at 6.7744 against the US dollar on July 24, 2026, down 38 basis points for the day, while the central parity rate was raised by 33 basis points, creating a divergence between the central parity and the closing rate. For textile exporters invoiced in USD, this means a loss of nearly RMB 3,800 for every million-dollar order at settlement. More critically, the central bank conducted open market operations on the same day, including a 7-day reverse repo of 89 billion yuan and a 1-year MLF of 500 billion yuan, but net withdrew 843 billion yuan from the market, marking one of the largest weekly net withdrawals in recent months.
Dual Pressure from Exchange Rate and Liquidity
Exchange rate fluctuations never occur in isolation. The central bank's 'short-term injection, long-term withdrawal' approach effectively raises market funding costs. Textile companies typically rely on short-term financing for working capital, and tighter liquidity means higher financing costs, compounding the settlement losses from currency depreciation.
Historically, every 1% depreciation of the RMB boosts textile export profit margins by 0.6-0.8 percentage points, but this assumes stable exchange rate expectations. Currently, the rate oscillates around 6.77, with persistent divergence between the central parity and closing rate, making it difficult for companies to lock in long-term settlement prices. For exporters with order cycles of 3-6 months, risk premiums on forward quotes are forced upward.
Differentiated Responses Across Industrial Clusters
Different textile clusters show varying sensitivity to exchange rate movements. Keqiao's chemical fiber fabric cluster, with low unit value and margins, suffers more directly from currency swings. Shengze's silk-like and lining fabric enterprises, with high export ratios and large batch sizes, often use forward settlement tools, but hedging costs are rising. Nantong's home textile companies face additional pressure: long return cycles and slow inventory turnover amplify the impact on uncollected receivables.
- Keqiao: Small and medium fabric firms lack hedging tools; short-term depreciation directly compresses net profits
- Shengze: Large weaving mills lock in some profits via forward contracts, but hedging costs increase
- Nantong: Home textile exporters face inventory depreciation risk; need to accelerate receivable turnover
Transmission Mechanism to Buyers and Exporters
RMB depreciation theoretically boosts export competitiveness, but today's market is more complex. On one hand, depreciation lowers USD-denominated prices of Chinese textiles, potentially stimulating short-term orders from overseas buyers. On the other, rising funding costs and increased volatility make companies cautious in taking new orders. Some exporters are experimenting with RMB-denominated contracts to shift currency risk to buyers, but overseas acceptance remains limited.
A more subtle impact is on raw material costs. China is the world's largest producer of chemical fibers, and prices of PTA, polyester, etc., are closely linked to exchange rates. RMB depreciation means higher costs for imported raw materials (e.g., high-end fibers and auxiliaries), while domestic demand remains weak, squeezing weaving mills' margins from both sides.